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House panel probes banks' alleged role in LIBOR-fixing scandal

It plans to question Federal Reserve Chairman Ben S. Bernanke and Treasury Secretary Timothy F. Geithner about allegations that banks rigged the key interest rate.

July 16, 2012|By Jim Puzzanghera and Marc Lifsher, Los Angeles Times
  • House Financial Services Committee Chairman Spencer Bachus (R-Ala.), right, and the panel's top Democrat, Rep. Barney Frank (D-Mass.), announced the probe.
House Financial Services Committee Chairman Spencer Bachus (R-Ala.),… (Jacquelyn Martin, Associated…)

WASHINGTON — A House committee is launching a bipartisan investigation into allegations that large banks rigged a key interest rate, and will start by questioning Federal Reserve ChairmanBen S. Bernanke and Treasury SecretaryTimothy F. Geithner at upcoming hearings.

At the same time, officials at the country's largest public pension fund, the California Public Employees' Retirement System, said Monday they were examining the effect of the rate-fixing scandal and might seek damages if they could be calculated.

"Once again, the financial services industry demonstrated that it cannot be trusted to make decisions in the long-term interests of investors," said CalPERS Chief Investment Officer Joseph Dear.

House Financial Services Committee Chairman Spencer Bachus (R-Ala.) and the panel's top Democrat, Rep. Barney Frank (D-Mass.), announced their probe Monday, joining investigations by regulators.

The lawmakers said the committee would focus on the allegations that banks tried to manipulate the London Interbank Offered Rate, or LIBOR, a key interest rate that helps determine borrowing costs for consumers and corporations.

The investigation will look at the potential effect of such manipulation on consumers and the financial system, as well as how U.S. regulators oversee the rate, Bachus and Frank said in a memo to committee members.

They said lawmakers on the panel would have "an initial opportunity to explore issues related to LIBOR" when Bernanke makes his semiannual appearance before the committee Wednesday to discuss monetary policy and the state of the U.S. economy.

Committee members will get a chance to question Geithner on the issue at a hearing previously scheduled for July 25 about the Dodd-Frank financial reform law.

Geithner was president of the Federal Reserve Bank of New York in 2008 when it learned from a Barclays employee that the British investment bank was under-reporting its borrowing costs to lower the benchmark LIBOR rate, according to documents the Fed released last week. The employee said that other large banks also were under-reporting their borrowing costs and that Barclays didn't want to be an outlier.

The New York Fed regulates Barclays' U.S. operations. The documents also showed that Geithner made recommendations to the Bank of England, the main regulator of Barclays, "to improve the integrity and transparency of the rate-setting process," the New York Fed said Friday.

Last month, Barclays agreed to pay $450 million to settle rate-manipulation charges filed by U.S. and British officials, and the bank's chief executive, Robert E. Diamond Jr., and two other top executives since have resigned because of the scandal.

House Financial Services Committee members will be briefed on the interest rate issue Tuesday by analysts from the nonpartisan Congressional Research Service, one of several briefings planned. Bachus and Frank said the committee will schedule additional hearings "as appropriate on LIBOR-related issues."

Bernanke also is likely to be questioned about the rate-rigging scandal during a previously scheduled hearing on monetary policy Tuesday by the Senate Banking Committee.

Chairman Tim Johnson (D-S.D.) said last week he was concerned about the allegations and asked Bernanke and Geithner, who also will be testifying before the Senate Banking Committee this month, to be prepared to answer questions.

Dear, of CalPERS, called for aggressive prosecution in the U.S. and abroad of any bankers found to have manipulated the LIBOR rate. He made the comments at a CalPERS board meeting, where he announced that the fund's return on investment for the fiscal year ended June 30 was only 1%.

jim.puzzanghera@latimes.com

marc.lifsher@latimes.com

Puzzanghera reported from Washington; Lifsher from Sacramento.

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