British financial regulator was warned of 'significant' Libor problem in 2008


... Just like the U.S. CFTC with gold and silver.

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By Harry Wilson
The Telegraph, London
Tuesday, March 5, 2013

Bank regulators realised as early as 2008 that manipulation Libor could pose a "significant" problem for the banking industry, it has emerged.

In an internal report on its handling of the scandal, the Financial Services Authority admitted that several warnings about the rigging of borrowing rates had gone unheeded.

The FSA conceded it had been slow to respond to intelligence provided by banks and its own staff about the dangers posed to the financial system by Libor-rigging.

In one email an employee in the FSA's legal division sent an email to a colleague in its risk department, discussing the risk to loans if rates were being rigged.

"There could be a more significant issue if it [Libor] is not being calculated properly as that would potentially mean that people are paying rates on a false premise," wrote the unidentified official in April 2008.

In another warning the same month, the compliance officer of a smaller bank sent an email to the FSA stating: "It appears to us that something is wrong when a panel of contributor banks is supplying Libor at below what the banks can achieve in the market. It may be worth the FSA investigating to see if the contributor banks are making profits on the back of these quotes."

... Dispatch continues below ...


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In a comment on the banker's email to senior FSA managers one supervisor noted "the implications if someone wanted to challenge the 'fairness’ of the fixes are massive."

The FSA's report found 74 potential potential warnings of so-called "lowballing" of Libor submissions by major banks, of which 24 were described as "direct." Of these direct references, half came from Barclays, which was last year fined L290 million by the US and British authorities after admitting attempting to rig key global borrowing rates.

However, the FSA said its review of 17 million records, including the detailed study of 97,000 documents, had found no other references to rigging.

"The FSA had no formal regulatory responsibility for Libor submission process. As a result, the FSA did not respond rapidly to clues that lowballing might be occurring," said Lord Turner, chairman of the FSA.

So far, Barclays, Royal Bank of Scotland, and UBS are the only banks to have been fined over Libor-rigging, but more than a dozen other major lenders are currently under investigation, including Lloyds Banking Group and HSBC.

On top of the official investigations, several legal actions are alredy in the works from customers sold products that were priced off Libor.

Claimants will be hoping to persuade courts that the potentially widespread manipulation of borrowing rates put them at a severe financial disadvantage.

In the UK, Guardian Care Homes, a care home operator, has taken Barclays to court over interest rate swaps linked to Libor it alleges the bank mis-sold it in what is seen as a test case for how the English courts will treat Libor-rigging claims. Barclays is challenging the claim.

City analysts have estimated legal claims related to Libor could cost the banking industry tens of billions of pounds.

The potential of Libor claims has been suggested as one of the reasons why the British authorities have been forcing banks to raise new capital.

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