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Federal Reserve Board Chairman Ben Bernanke rose to the defense of the New York Fed over its handling of reports as far back as four years ago that Barclays traders had been manipulating the London interbank offered rate.
July 17 -
Nearly one year after the Treasury Department outlined a broad strategy for housing finance reform, Treasury Secretary Tim Geithner said Thursday the administration will finally outline more specific plans in the next few months.
February 2
WASHINGTON — Billed as a discussion of the Dodd-Frank Act's second anniversary, Treasury Secretary Timothy Geithner's appearance this week on Capitol Hill is instead expected to focus primarily on alleged manipulation of the London interbank offered rate.
Geithner is scheduled to testify Wednesday in front of the House Financial Services Committee and Thursday before the Senate Banking Committee.
Although he is ostensibly visiting the panels to discuss the Financial Stability Oversight Council's annual report, lawmakers are increasingly focused on the Libor scandal, which occurred in part while Geithner was president of the Federal Reserve Bank of New York.
Industry observers said the testimony may prove to be a critical turning point for Geithner and the Obama administration.
"How Geithner does this week could well determine if his involvement is a fleeting moment or the start of a political headache for the President," wrote Jaret Seiberg, an analyst with Guggenheim Securities' Washington Research Group, in a note to clients.
Indeed, Rep. Randy Neugebauer, the chairman of a key Financial Services subcommittee, sent a letter Monday to current New York Fed president William Dudley asking detailed questions about the issue.
The Texas Republican thanked Dudley for earlier information that showed the New York Fed worked to identify flaws in the way Libor was set, but wanted more data about how the banks involved were treated.
"What is less clear in your response is how the NY Fed dealt with admissions of market manipulation by Libor contributing banks," Neugebauer wrote. "As you know, the role of government is to ensure that our markets are run with the highest standards of honesty, integrity and transparency. Therefore, any admission of market manipulation - regardless of the degree—should be swiftly and vigorously investigated."
Neugebauer requested several sets of documents, including any communications from Aug. 1, 2007 to July 20, 2012 between New York Fed employees and executives at the 16 Libor contributing banks. Such institutions include JPMorgan Chase, Bank of America and Citigroup.
The lawmaker also requested any documents during that time period from New York Fed officials concerning the reporting and submission of Libor rates as well as all communications on the subject between the regional Fed bank and federal and international regulators. Geithner was president of the New York Fed until January 2009, when he became Treasury secretary.
Geithner is likely to echo Fed Chairman Ben Bernanke, who testified last week that the central bank took appropriate steps to inform United Kingdom authorities when it suspected manipulation of the Libor rate.
"The Federal Reserve Bank of New York, after receiving information from its market inquiries responded very quickly," Bernanke said. "It set up an internal working group to address the issue. Importantly, it informed all the relevant authorities in both the U.K. and the United States."
A Barclays trader told a junior Fed employee in a phone call on April 11, 2008, that he thought Barclays was underreporting its rate to avoid looking weak during the period of the financial crisis, Bernanke said. The trader did not, however, suggest the rates were being manipulated for profit — an allegation that has been made more recently.
To be sure, Geithner is also likely to field a host of questions on Dodd-Frank and other subjects.
In particular, Rep. Scott Garrett, the chairman of the subcommittee with oversight of the government-sponsored enterprises, is likely to press the Treasury secretary on the Obama administration's plan, or lack thereof, to reform Fannie Mae and Freddie Mac.
Geithner pledged in February to provide more details on how the administration wants to approach the issue this spring, but has so far failed to do so. House Republicans have repeatedly blasted the administration for failing to provide leadership on the issue.
The administration unveiled a long-awaited white paper in 2011 that detailed different ways the GSEs could be reformed, but has yet to publicly commit to any single approach.
