March 29, 2023

DealBook: Geithner Faces Senate on Rate-Rigging Scandal

Senator Richard Shelby, right, Republican of Alabama, attacked Timothy F. Geithner on Thursday over the rate-rigging scandal.Alex Wong/Getty ImagesSenator Richard Shelby, right, Republican of Alabama, attacked Timothy F. Geithner on Thursday over the rate-rigging scandal.

Congress intensified its focus on the interest-rate rigging scandal on Thursday, as Timothy F. Geithner, the Treasury secretary, vowed that authorities would forcefully pursue criminal investigations into some of the world’s biggest banks.

In testimony before a Senate panel, the second Congressional hearing this week to focus on Mr. Geithner, he promoted the government’s efforts to punish banks that tried to manipulate a benchmark interest rate during the financial crisis. He also deflected questions about his response to the wrongdoing, which occurred in 2008 when he ran the Federal Reserve Bank of New York, which focused on reforming the rate-setting process rather than halting the illegal actions.

Authorities around the world are investigating whether more than a dozen big banks manipulated the London interbank offered rate, or Libor, a measure of how much banks charge to lend to one another. The benchmark rate underpins trillions of dollars in mortgages and other loans.

“We cannot lose sight of the fact that the Libor issue, at its core, is about fraud,” Senator Tim Johnson, Democrat of South Dakota and chairman of the Senate Banking Committee, said at the hearing on Thursday. “I want you to commit to me and the American people that the administration will make sure that those involved in Libor fraud will be held accountable and prosecuted.”

“Absolutely,” Mr. Geithner replied. “I’m very confident that the Department of Justice and the relevant enforcement agencies will meet that objective.”

Libor Explained

Last month, Barclays settled accusations that it undermined Libor to aid profits and deflect concerns about its health, the first action to come from the multiyear investigation. The British bank agreed to pay $450 million to authorities.

Republicans, however, took aim at Mr. Geithner for his somewhat passive approach to the Barclays fraud.
In April 2008, the New York Fed learned that Barclays had been artificially depressing its rates. “We know that we’re not posting, um, an honest” rate, a Barclays employee told a New York Fed official. At the time, Mr. Geithner ran the regional Fed bank.

But when Mr. Geithner discussed Libor with other American regulators in May 2008, he did not disclose the specific wrongdoing at Barclays. He also stopped short of referring the matter to the Justice Department.

“He, too, may have tempered his response,” said Senator Richard C. Shelby of Alabama, the ranking Republican on the committee. The statement echoed Republican criticism at a House Financial Services Committee hearing on Wednesday, where Mr. Geithner faced an even sharper attack.

At both hearings, Mr. Geithner pushed back on the critique, citing his May 2008 conversations with other regulators. He also noted the New York Fed pressed for an overhaul of the rate-setting process. In a June 2008 e-mail to the Bank of England, the country’s central bank, Mr. Geithner recommended that British officials “eliminate incentive to misreport” Libor.

“I believe that we did the necessary and appropriate thing,’ he said on Thursday.

Democrats also came to his defense.

“There are some who seek to put the entire blame on the cops,” Mr. Johnson said. “But it would be a mistake to shift the focus away from the continued effort to hold the companies and individuals who committed fraud accountable.”

Mark Warner, Democrat of Virginia, cheered Mr. Geithner for being “the only guy who actually sounded the alarm.”

For his part, Mr. Geithner acknowledged that Libor was the most recent scandal in a string of Wall Street blowups. The problems, he said, have delivered an enduring black eye to the financial industry.

“We’ve seen a devastating loss of trust in the integrity of the financial system.”

This post has been revised to reflect the following correction:

Correction: July 26, 2012

An earlier version of this post misspelled the name of the senator from Alabama who serves as the ranking Republican on the Senate Banking Committee. It is Richard C. Shelby, not Selby.

Article source: