U.S. Treasury Secretary Timothy Geithner pressed the Bank of England in June 2008 to make changes in the way that Libor, a key interest rate benchmark, was set, according to documents obtained by Reuters.
Geithner, who was the head of the New York Federal Reserve Bank at the time, sent a private email to BoE Governor Mervyn King recommending six ways to enhance the credibility of the London interbank offered rate.
More than a dozen banks are under investigation by authorities in Europe, Japan and the United States over suspected rigging of the global borrowing cost benchmark, which is used in contracts worth trillions of dollars globally.
The June 1, 2008, email, first reported by the Washington Post, included a two-page memo dated May 27 of that year that suggested establishing best practices for calculating Libor, "including procedures designed to prevent accidental or deliberate misreporting."
It recommended the British Bankers' Association require that auditors for banks reporting their borrowing costs for the calculation of Libor attest to the accuracy of their rates.
London-based Barclays is the only bank so far to admit any wrongdoing in giving false information as part of the complex process of setting Libor, in order to influence the pricing of derivatives and also to rebut speculation about the weakness of its balance sheet during the financial crisis.
Barclays agreed to pay fines of $453 million in a settlement with U.S. and British officials. Libor is used for $550 trillion of interest rate derivatives contracts, and influences rates from mortgages to student loans to credit cards.
The scandal so far has been mostly confined to London, with public outcry that regulation in Britain was lax. But concern has grown about the wider impact on consumers and the involvement of U.S. regulators.
A group of Democratic senators on Thursday pushed for the U.S. Justice Department and financial regulators to step up investigations into whether global banks manipulated the interest rate benchmark. U.S. state attorneys general are also jumping into the widening scandal, a move that could open a new front against the top global banks.
The New York Fed is due to release documents on Friday that it has said will show it took "prompt action" four years ago to highlight problems with Libor.
In his email, Geithner suggested one way to "eliminate (the) incentive to misreport" would be to randomly select a subset of 16 reporting banks and calculate an average after discarding the highest and lowest values, without identifying which banks may have had unusually high or low borrowing costs.
During the 2007-2009 financial crisis, the borrowing costs of many banks soared as counterparties worried about their health. Some banks may not have wanted their high borrowing costs to become public out of fear it may have fueled concern about their viability.
"We would welcome a chance to discuss these (suggestions) and would be grateful if you would give us some sense of what changes are possible," Geithner wrote, noting that he had briefly discussed Libor with King earlier in Basel, Switzerland.
It is not clear how far the New York Fed pressed any concerns it may have had. The New York Fed declined to comment.
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