The scandal over the manipulation of global
interest rates until now has mostly put bankers in the spotlight. But the focus
on Monday will turn to the regulators, both on what they did and what they did
not do.
Paul Tucker, a deputy governor at the Bank
of England, will give evidence on whether senior government officials put
pressure on Barclays to lower its submissions to the London interbank offered
rate, or Libor. Barclays agreed in late June to pay some $450 million to settle
accusations from United States and British authorities that its traders and
senior executives had manipulated the rate, which underpins trillions of
dollars of corporate loans, home mortgages and derivatives around the world.
Mr. Tucker’s testimony could put him at
loggerheads with Robert E. Diamond Jr., the former chief executive of Barclays,
who told the same committee last week that the Bank of England, as well as the
Financial Services Authority of Britain and the Federal Reserve Bank of New
York, had repeatedly been informed about the issue, but had not moved to stop
it.
After resigning last Tuesday, Mr. Diamond
released an e-mail last week that indicated that Mr. Tucker had questioned why
the bank was submitting rates consistently higher than rivals, a sign of
relatively poor health.
How Mr. Tucker responds promises to be a
pivotal in the central banker’s career. The 54-year-old Cambridge graduate is a
leading candidate to replace Mervyn King next year in the top job as the
governor of the Bank of England, one of the world’s most important central
banks.
“The focus will be on whether his recollection tallies with what Bob
Diamond told us,” said Pat McFadden, a Labour member of Parliament who sits on
the committee overseeing Mr. Tucker’s testimony. “We want to know if anyone at
the Bank of England or in other government departments asked Barclays to lower
its Libor submissions.”
Through a spokeswoman, Mr. Tucker declined
to comment.
The intense scrutiny confronting Mr. Tucker
follows a career spanning more than three decades at the Bank of England. After
brief stints in the 1980s at the British bank Baring Brothers and with the Hong
Kong government, he rose through the ranks to become the British central bank’s
deputy governor in charge of financial stability in 2009.
Mr. Tucker also is a leading figure in
global efforts to overhaul financial regulation. Along with his Bank of England
duties, he currently holds senior positions at both the Financial Stability
Board and the Global Economy Meeting, whose memberships comprise officials from
the world’s leading central banks.
Unlike some other regulators, Mr. Tucker is
known for his practical understanding of both the financial markets and the
current effort to provide extra financing support to prop up British banks,
according to several of his current and former colleagues, who spoke on the
condition of anonymity because of the importance of his testimony on Monday.
“He would be a good man for the top job” at the Bank of England, said
one of the people. “He understands banks and is a naturally bright guy who gets
how the financial system works.”
Mr. Tucker’s reputation, however, has been
tarnished by the Libor scandal. The British government will start its search
for a new central bank chief toward the end of the year.
Analysts say other potential candidates,
like Gus O’Donnell, a recently retired high-ranking British civil servant, may
benefit from Mr. Tucker’s involvement in the Barclays’ rate manipulation
affair. “Intellectually, he’s not up to the job,” said David Blanchflower, a
British economist who sat on the Bank of England’s monetary policy committee
with Mr. Tucker from 2006 to 2009. “Every single call since 2007, he has got
wrong.”
Mr. Blanchflower points to a Bank of England
meeting in November 2007 led by Mr. Tucker when a number of officials raised
concerns that Libor submissions were lower than market rates. “He was told
about the problem, but didn’t do anything about it,” Mr. Blanchflower added.
A lot now depends on Mr. Tucker’s
testimony. In a highly unusual step for a British government official, the
central bank’s deputy governor released a statement last week, requesting to
give evidence to the British parliamentary committee “as soon as possible.”
His testimony is expected to center
primarily on a phone call with Mr. Diamond in late October 2008. Last week, the
former Barclays chief told the parliamentary committee that Mr. Tucker had
expressed concerns from senior British politicians that Barclays’ Libor
submissions were higher than those of rivals.
Mr. Diamond then e-mailed Jerry del
Missier, a top deputy, about the conversation, saying that Mr. Tucker had
stated that it “did not always need to be the case that we appeared as high as
we have recently,” according to documents released by Barclays.
Mr. del Missier, who also resigned last
week because of the rate manipulation scandal, then directed employees to keep
the submitted rates lower, or at least in line with rivals. His actions, some
regulators say, were a result of a “miscommunication,” rather than instructions
from Mr. Tucker.
Mr. Diamond has said that he did not tell
senior executives to lower the bank’s Libor rate submissions. The former
Barclays chief also said that he had been told only last month about the
activity, which occurred amid the financial crisis.
“I was unaware that Jerry had the impression that Tucker’s phone call
was taken as an instruction” to alter the rate, he told the committee.
The involvement of senior British officials
has appeared to deflect some of the attention of the scandal away from
Barclays. Some of the firm’s traders also had been altering Libor to benefit
their own trading positions as far back as 2005.
Yet British politicians have expressed
skepticism that the Bank of England actually put pressure on Barclays to change
its Libor rates. Some contend that the conversations were part of officials’
ongoing checks on one of the country’s largest financial institutions at the
height of a financial crisis.
“I doubt the Bank of England was leaning on Barclays to lower its
Libor submissions,” Mr. McFadden, the British politician, said. “In the end,
Barclays already had been doing that for years.”
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