A Barclays employee notified the Federal Reserve Bank of New York in April 2008 that the firm was underestimating its borrowing costs, following potential warning signs as early as 2007 that other banks were undermining the integrity of a key interest rate.
In 2008, the employee said the move was prompted by a desire to ‘‘fit in with the rest of the crowd’’ and added, ‘‘we know that we’re not posting um, an honest Libor,’’ according to documents the agency released Friday. The Barclays employee said he believed such practices were widespread among major banks.
In response, the New York Fed began examining the matter and passed its findings to other financial authorities, according to the documents.
But the agency’s actions came too late and failed to thwart the illegal activities. By the time of the April 2008 conversation, the British firm had been trying to manipulate the interest rate for three years. And the practice persisted at Barclays for about a year after the briefing with the New York Fed.
Friday’s revelations shed new light on regulators’ role in the rate manipulation scandal. The documents also raise concerns about why authorities did not act sooner to thwart the rate-rigging.
Among those in the spotlight is Timothy F. Geithner, then the president of the New York Fed, who briefed other regulators about the problems in May and June 2008. Still, questions remain about whether Geithner, who is now the Treasury secretary, was aggressive enough in rooting out the problem, a matter he will most likely address in congressional testimony this month.
Regulators have faced increased scrutiny in recent weeks, after Barclays agreed to pay $450 million to settle claims that it reported bogus rates to deflect scrutiny about its health and bolster profits. The case is the first major action stemming from a broad inquiry into how big banks set key interest rates, including the London interbank offered rate, known as Libor.
Lawmakers are pressing regulators to explain their actions surrounding Libor. Politicians in Washington and London are worried about the integrity of Libor, which serves as a benchmark interest rate for trillions of dollars worth of loans to consumers and corporations, as well as more sophisticated financial products.
This week, the oversight panel of the House Financial Services Committee sent a letter to the New York Fed seeking transcripts from several phone calls involving regulators and Barclays executives. The New York Fed released documents and e-mails Friday in response to the request.
“I’m pleased that the New York Fed responded to my request in a timely and transparent fashion. We’re reviewing the documents now, and once we’ve thoroughly examined them, we’ll decide how to proceed,’’ said Representative Randy Neugebauer, Republican of Texas, chairman of the House Financial Services Subcommittee on Oversight and Investigations.
Neugebauer added: ‘‘As much as $800 trillion in financial products are pegged to Libor, so any manipulation of this rate is of serious concern. We’ll continue looking into this matter to determine who was involved in this practice and whether it could have been prevented by regulators.’’
The documents released Friday indicate that Barclays had been notifying regulators about its concerns regarding the accuracy of the interest rate since 2007. In August that year, a Barclays employee e-mailed a New York Fed official, saying, ‘‘Draw your own conclusions about why people are going for unrealistically low’’ rates.