Congress is investigating whether regulators (specifically, the New York Fed) did enough to protect the public when it discovered that some were mis-stating interest rates to boost the bottom line.
“But Mr. Geithner on Wednesday also acknowledged that he did not alert federal prosecutors to the wrongdoing.
The revelation prompted lawmakers to question whether his response was sufficient, given the scope of wrongdoing and the importance of Libor to the broader financial system. Libor, a measure of how much banks charge to lend to one another, is a benchmark for trillions of dollars in mortgages and other loans.
In April 2008, the New York Fed learned from Barclays that it was artificially depressing its Libor reports to deflect concerns about its health. “We know that we’re not posting um, an honest” rate, a Barclays employee told a New York Fed official in April 2008.
Mr. Geithner said he was not aware at the time of “that specific conversation.”
But that same day, New York Fed officials wrote in a weekly internal memo that the problem was widespread. “Our contacts at Libor contributing banks have indicated a tendency to underreport actual borrowing costs,” New York Fed officials wrote, “to limit the potential for speculation about the institutions’ liquidity problems.” At the time, high borrowing costs were a sign of poor health.
Even after discovering that banks were gaming Libor, the New York Fed pursued a somewhat passive approach.
When Mr. Geithner briefed other American regulators on Libor in May 2008, he did not disclose the specific wrongdoing at Barclays. Republicans on Wednesday also pressed him to explain why he didn’t notify the Justice Department about the illegal behavior.
He explained that the Justice Department does not belong to the working group of regulators that were focused on Libor.
Mr. Geithner, who on Wednesday also outlined the state of Wall Street regulation, heralded his past efforts to reform Libor. He noted that the New York Fed repeatedly pushed a British trade group that oversees Libor to overhaul the rate-setting process. ”