Governor of the Bank of England Mervyn King has angrily rejected claims that it was only three weeks ago that "the penny dropped" for him that the key bank interest rate Libor had been manipulated, insisting that there had been "no evidence of wrongdoing" until the Financial Services Authority (FSA) published the findings of its long-running inquiry into Barclays.
"The first we knew about fraud in this connection was two weeks ago," insisted King, saying the Bank of England hadn't had time to work out how the Libor rate had been manipulated at Barclays, and claimed it was the job of the FSA, not the central bank, to investigate the scandal further.
Mervyn King has also claimed that the City regulator received little or no support, even from Parliament, until 2007 when the credit crunch first began. He also said there is a "world of difference" between concerns that Libor was dysfunctional and suggestions that fraud had taken place.
King was appearing before MPs on the Treasury Commitee to explain how much he knew about attempts by Barclays Capital and other banks to manipulate the Libor interest rate offered between banks during the financial crisis.
King's evidence follows similar hearings from ex-Barclays CEO Bob Diamond and the former chairman of Barclays Marcus Agius. Both have denied knowing about or sanctioning the manipulation of Libor, the interest rate which indicates how much banks are charging each other for loans.
King also acknowledged that he had impressed on the Board of Barclays that the FSA had lost confidence with senior management of Barclays, when it seemed likely that Marcus Agius and Bob Diamond would try to stay in their jobs.
Scrutiny of the The Bank of England governor came after a former member of the Monetary Policy Committee, David Blanchflower, told The Huffington Post that the bank governor was "not interested" when he was warned about attempts to fix Libor in 2008.
Among the other key points:
- The chairman of the FSA, Lord Turner, has told MPs that he thought Bob Diamond's resignation was the "honourable" thing to do.
- Turner said it was appropriate for the Bank of England to have discussions with the banks about Libor - despite the FSA being the regulator. He told MPs that it was important for financial institutions to know they had the central bank's confidence.
- Turner said that had Bob Diamond stayed on as CEO of Barclays it would have been "to the disadvantage" of shareholders and that there had been a "change of shareholder attitude" towards Diamond in the days before his resignation.
- Mervyn King said the board of Barclays was "taken aback" when Agius resigned and had wanted him to stay on. Mervyn King had a conversation with the outgoing chairman to express concerns that the FSA had about Barclays. King says he told Barclays that they "hadn't taken on board" the depths of concerns the regulators had about the management at the bank.
- King said he could not discuss his intervention into the Barclays crisis with his deputy Paul Tucker because it would have meant Tucker was "compromised". He did, however, discuss his meetings with Barclays executives with the chancellor.
- Paul Tucker said that the Bank of England knew that the money markets were "dysfunctional" and were concerned about "eroding credibility" in November 2007. But nobody suspected dishonesty and nobody urged him to take further action.
- Tucker says that Libor had become a "portmanteau" for several market indicators, not just that specific interest rate.
Some MPs on the Treasury Committee will be involved in a separate parliamentary inquiry into practices in the banking industry, which was the government's preferred option as opposed to a full independent judge-led inquiry.