Fox guarding the henhouse in the banking industry
Pam Martens has an interesting column in Wall Street on Parade today:
Federal Reserve Chairman Ben Bernanke’s statement to Congress last week that the process for setting Libor is “structurally flawed” may live in infamy as the understatement of this financial era.
According to documents available on the British Bankers Association’s web site, just 90 days before Barclays was charged with rigging Libor and fined $453 million by U.S. and U.K. regulators, it had been appointed to a steering committee to oversee the integrity of Libor.
LIBOR, the London Interbank Offered Rate, is the benchmark interest rate set each business day, in 10 currencies and 15 maturities. It is supposed to represent the actual rate at which banks are borrowing from each other. The rate is used as an index to set approximately $10 trillion in consumer loans, including adjustable rate mortgages, credit card debt and student loans in the U.S. It also impacts the rate of interest received by municipalities, pensions, and corporations around the world on hundreds of trillions of dollars in interest rate swaps. Financial institutions peg their interest rates on notes they issue to Libor as well and it impacts trillions in exchange traded derivatives.
On March 28 of this year, the BBA announced that a Libor review was being conducted to consider three areas: “The financial instruments included for the purposes of defining the rate; a rigorous code of requirements for all contributors; and strengthening the statistical underpinning of the contributions.”
Conducting the review would be a steering group to “include Barclays, . . . “
Continue reading. There’s more. The fact that Barclays leads the list of the steering group is an artifact of alphabetic listing, but there’s still a lot of meat in the article. From further down in the article:
Up to now, the public had been led to believe that the British Bankers Association (BBA), a trade association of international banks, was overseeing the setting of Libor. As bad as that sounds, the reality is even worse. . .
And a related story in the NY Times by Ben Protess and Jessica Silver-Greenberg: New York Fed Faces Questions Over Policing Wall Street. And, of course, Timothy Geithner, former head of the NY Fed, is now our Secretary of Treasury, where he oversees much more. The tentacles extend in all directions.