U.S. Treasury Secretary Timothy Geithner defended how the U.S. addressed the Libor scandal, telling a House financial committee that he had alerted U.K. authorities with concerns of banks rigging interest rates as early as 2008, and that it was their responsibility to act.
Geithner Wednesday reiterated to the House Financial Services Committee that he had done the “important and fully appropriate” action as president of the New York Federal Reserve by alerting the U.K. in the spring of 2008 his concerns that banks were artificially manipulating the London Interbank Offered Rate, known as Libor.
“We brought those concerns to their attention and we felt, and I still believe this, that it was really going to be on them to take responsibility for fixing it,” Geithner said on Wednesday.
Four years ago, in a six-point memo directed to the head of the Bank of England, Geithner offered his recommendations on how to handle the scam, advice that he said was received “affirmatively.” The scandal officially blew up last month when investigations revealed the full extent of the rate-rigging, forcing the London-based bank Barclays’ CEO Robert Diamond to step down, and the firm to pay a multimillion-dollar fine for manipulating the rate.
“We were aware of the risk that the way this was designed created not just the incentives for banks to underreport but gave them the opportunity to underreport and that was a problem,” Geithner told the committee.
Although Geithner passed the buck to U.K. authorities given the Libor scandal originated in London, its implications extend to the lives of everyday Americans, as guest host Ezra Klein reiterated on Tuesday night’s The Rachel Maddow Show.
“Every day when banks here in the U.S. are deciding how much they are going to charge you for say a mortgage, they use Libor as like the floor of that rate,” Klein explains. “So if banks were intentionally manipulating Libor, then the rate being charged on mortgages in the U.S. wasn’t what it should have been.”