Fed Chairman Ben Bernanke and former New York Fed President (and current Treasury Secretary) Tim Geithner. The New York Fed unveiled documents showing its handling of the Libor scandal.
The New York Federal Reserve on Friday released documents showing it knew banks were manipulating a key interest rate more than four years ago.
The documents, which date back to 2007, show that the Fed became fully aware that banks were lying about their borrowing costs when setting Libor, and chose to take no action against them.
The documents will likely feed growing concerns about whether the New York Fed, its former chief Timothy Geithner and other market watchdogs did everything they could to stop the manipulation. The documents also raise more questions about whether the New York Fed and other regulators were too cozy with the banks involved, looking the other way in order to spare the banks too much pain at a time when the financial crisis was still brewing.
"We know that we’re not posting um, an honest LIBOR," a Barclays employee tells a New York Fed analyst in an April 11, 2008, call, "and yet we are doing it, because, um, if we didn’t do it, It draws, um, unwanted attention on ourselves."
The New York Fed representative expresses sympathy and understanding:
"You have to accept it," she says. "I understand. Despite it’s against what you would like to do. I understand completely."
The widespread manipulation of Libor, an interest rate set by banks self-reporting what they pay to borrow money for short periods, may have cost borrowers (when rates were manipulated higher) and state and local governments (when rates were manipulated lower) untold millions of dollars. And it could end up costing several banks billions of dollars in penalties and lawsuits.