Bank of England exec denies pressure on Barclays

A senior Bank of England official denied Monday that he had given any hint to Barclays that it should manipulate reports of its borrowing costs.

Paul Tucker, the Bank of England's deputy governor, also told U.K. lawmakers that no one in government had leaned on him to put pressure on Barclays to "lowball" its reporting.

Barclays has been fined $453 million by U.S. and British agencies for feeding false data which went into calculations of the London interbank offered rate (LIBOR), a key market index which influences the costs of a wide range of financial instruments, including home mortgages.

Tucker appeared before the House of Commons Treasury Committee to give his version of a conversation with former Barclays CEO Bob Diamond on Oct. 29, 2008.

Diamond said Tucker told him "that while he was certain we did not need advice, that it did not always need to be the case that we appeared as high as we have recently."

Tucker said Diamond's version gave the wrong impression and "should have said something along the lines of, are you insuring that you, the senior management of Barclays are following the day-to-day operations of your money market desk, your treasury; are you insuring that they don't march you over the cliff inadvertently by giving signals that you need to pay UP for funds.".

Unlike Diamond, Tucker said he had not made a note of the conversation at the time.

In the wake of the fines, Diamond resigned and Barclays Chairman Marcus Agius announced that he would go as soon as his successor was chosen.

Diamond last week gave his version of a conversation with Tucker about why Barclays was quoting higher rates than other banks. Diamond's version raised questions about whether Tucker had in any way encouraged Barclays to cheat on its rate submissions.

Email traffic disclosed by the Bank showed that it was concerned about Barclays' rates. Two of those e-mails were between Tucker and Jeremy Heywood, then the senior civil servant in then-Prime Minister Gordon Brown's office.

In an email on Oct 22, 2008, Heywood spoke of Barclays' high rates, and added that there was "a lot of speculation in the market over what they are up to."

"I know. But I don't think that can be all of it," Tucker responded. "Cos I don't think they'd be an influence on euro LIBOR, which has also been stick. But we are trying to monitor what's going on."

Tucker at the time was the Bank of England's executive director for markets. He was appointed deputy governor in 2009, and is one of the leading candidates to succeed Governor Mervyn King when he steps down next year.

Tucker said his contacts with the government at the time were with civil servants, not with elected ministers.

Seven days after the Tucker-Heywood exchange, Diamond had a telephone conversation with Tucker.

A note recorded by Diamond, which was submitted to the House of Commons Treasury Committee last week, said Tucker initiated the call, saying senior government officials were wondering why Barclays was reporting higher borrowing rates than other banks.

The implication, which also worried Barclays, was that this could be interpreted as a sign that Barclays was in financial difficulty and having trouble borrowing from other banks.

"I asked if he could relay the reality, that not all banks were providing quotes at the levels that represented real transaction," Diamond recorded in a memo after the call. "His response was 'Oh, that would be worse.'"

Diamond added that Tucker told him "that while he was certain we did not need advice, that it did not always need to be the case that we appeared as high as we have recently."

Diamond said he later discussed the conversation with Jerry del Missier, who was a senior manager of Barclays Capital.

"Jerry del Missier concluded that an instruction had been passed down from the Bank of England not to keep LIBORs so high. He passed down an instruction to that effect to the submitters," Diamond said. Del Missier resigned the same day as Diamond.

Barclays has said that individual traders — Diamond said it was 14 — sought to manipulate the LIBOR to protect their own positions at various times between 2005 and 2009. The bank has admitted that it also submitted false lower rates at times in 2007 and 2008 to discourage speculation that it was in trouble and thus had to pay more to borrow money from other banks.