New York Fed Knew of Libor Cheating in 2008
An unidentified employee of U.K. bank Barclays PLC told the New York Federal Reserve Bank more than four years ago that the bank was filing false reports on a key interest rate, according to documents released by the regional bank on Friday.
The documents show that a summary of this admission was quickly circulated throughout the U.S. government, including the Federal Reserve and the Treasury Department, in 2008. The London rate for interbank lending, known as Libor, is now at the center of a sweeping industry-wide, cross-border investigation into the setting of interbank-lending rates.
Barclays PLC BCS +1.09% was fined roughly $450 million for fixing Libor. Other banks across the world including Citigroup Inc. C +0.26% , J.P. Morgan Chase & Co. JPM -0.31% , the Royal Bank of Scotland RBS +2.05% and Deutsche Bank AG DB +1.80% have said they also are being probed.
Morgan Stanley analysts say the Libor scandal hits banks three ways: through fines (like the one Barclays just said it would pay), litigation risk and less certainty on future earnings, as regulators and politicians demand changes in the Libor and the broader industry as well. In a note published Thursday, they said they expect fines equaling about 9% of 2012 earnings per share and litigation risk of roughly $400 million per bank.