Libor reported as rigged in ’08 proving 2012’s revelation

July 19 (Bloomberg) -- Barclays Plc’s admission that it rigged the London interbank offered rate shows regulators, central bankers and politicians weren’t paying attention when everyone from Citigroup Inc. to the Bank for International Settlements indicated that the measure was being manipulated.

The BIS signaled in March 2008 that the benchmark was being misstated. A month later, analysts at Citigroup suggested the same. In May of that year, one of Barclays’s own strategists said the numbers reported by banks “were a lie.”

Barclays’s acknowledgement that it submitted false rates during the height of the credit crisis cost Chief Executive Officer Robert Diamond and other top managers their jobs and cut the bank’s market value by about 4.4 billion pounds ($6.9 billion). In the U.K. and abroad, at least a dozen banks are being investigated for manipulating Libor. Mervyn King, the Bank of England Governor since 2003, said this week that he only recently became aware of wrongdoing in the rate published by the British Bankers’ Association.

“The basic underpinning in credit is confidence and trust,” John Lonski, chief economist at Moody’s Capital Markets Group in New York, said in a July 18 telephone interview. “There has to be this trust in other parties if credit is going to work.”

Deficient Oversight

Five years after the onset of the worst financial crisis since the Great Depression, there’s still a lack of oversight of an opaque measure that has rattled markets and further eroded confidence in the financial system. Libor is a benchmark for $500 trillion of worldwide financial products from leveraged derivatives to home mortgages.

At least a dozen banks are being probed by regulators worldwide for potentially rigging the benchmark rate, including Citigroup, Royal Bank of Scotland Group Plc, UBS AG, Lloyds Banking Group Plc and Deutsche Bank AG.

Japan’s banking lobby said this week it may review lenders’ rate submissions and South Korea regulators started a probe into possible collusion in its money markets. Citigroup and UBS were ordered in December by Japanese regulators to suspend some businesses after their bankers were found to have attempted to influence the Tokyo interbank offered rate, or Tibor.

While e-mails from the New York Federal Reserve Bank indicate King must have known that Libor was being misstated, officials had incentive to ignore the rigging as they sought to manage the credit crisis, said Richard Bove, an analyst with Rochdale Securities LLC in Lutz, Florida, with more than 40 years of Wall Street experience.

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