Barclays managers “mistakenly” believed they had been granted permission to submit artificially low Libor estimates after a 2008 conversation between Bob Diamond, its chief executive, and Paul Tucker, deputy governor of the Bank of England.
Barclays last week paid a record £260m to UK and US regulators for submitting fraudulent bids to the process for setting the London Interbank Offered Rate, which is the reference point for $360tn in contracts worldwide.
The bank admitted that it lowballed estimates of its borrowing costs from late 2007 to May 2009 because it wanted to reassure investors of its strength during the financial crisis and it believed other banks were doing the same. It also admitted that its traders improperly influenced the rate submissions from 2005 to 2008 to make money on derivatives.
The statement of facts released by the US Department of Justice says that a senior Barclays official and a senior central bank official talked on October 29 2008 and the BoE official asked why Barclays’ Libor submissions were higher than those of other banks.
After the conversation, lower level Barclays’ officials “believed mistakenly that they were operating under an instruction from the Bank of England (as conveyed by senior management) to reduce Barclays’ Libor submissions”, according to the UK Financial Services Authority’s description of what happened.
Although the individuals are not identified in the documents, three people familiar with the contents confirmed that they are Mr Diamond and Mr Tucker, who heads the BoE’s financial stability arm.
After the call, mid-level Barclay’s managers told the employees who submitted the bank’s Libor estimates to lower their bids.
US settlement documents say that Mr Tucker did not give such an instruction and that Mr Diamond did not think he had done so. But the fact that they were talking about Libor at a time when Barclays was submitting false bids to the rate setting process will add fuel to the criticism of Mr Diamond, who is due to testify to Parliament on Wednesday.
The conversation could also prove problematic for Mr Tucker, who is a leading candidate to succeed Sir Mervyn King as governor when the latter steps down next year.
David Cameron on Saturday ordered an independent review into the workings of interbank lending rates