Treasury Secretary Timothy F. Geithner, responding to a second day of questions by lawmakers, said he was concerned when he heard about potential weaknesses in the London interbank offered rate in 2008 and repeated that he moved quickly to alert regulators in the U.S. and U.K.
“I absolutely thought this was a problem,” Geithner told the Senate Banking Committee today. Geithner, who was president of the Federal Reserve Bank of New York at the time, said he discussed Libor with officials at the Treasury Department, Securities and Exchange Commission and the Commodity Futures Trading Commission.
Confidence in Libor, a benchmark for securities worldwide, was hurt by Barclays Plc (BARC)’s admission that it submitted false rates. A probe by U.K. and U.S. authorities cost the London- based bank a record 290 million-pound ($449 million) fine and led to the ouster of Chief Executive Officer Robert Diamond.
Senator Richard Shelby of Alabama, the top Republican on the banking committee, said in a statement that news reports on Geithner’s handling of concerns about Libor manipulation “suggest that he, too, may have tempered his response to what can be characterized as a significant problem within the banking industry.”
The Libor issue is about fraud, said committee Chairman Tim Johnson, a South Dakota Democrat.
“There are some who seek to put the entire blame on the cops instead,” Johnson said in a statement. “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.”
Geithner said he didn’t know whether the U.S. banks reporting Libor were involved in manipulation. Geithner also said he doesn’t yet know how Libor manipulation affected U.S. markets.
Geithner said he took the “necessary and appropriate” steps in responding to Libor concerns by notifying U.K. and U.S. regulators. His testimony follows a House Financial Services Committee hearing where lawmakers also pressed him about his role in the Libor investigation.
“I thought the concerns themselves were sufficiently troubling to justify a very substantial response,” Geithner said.
“Given what we all now agree is very substantially troubling information about Libor, why was it allowed to be essentially the repayment metric for” the Troubled Asset Relief Program, Senator David Vitter, a Republican of Louisiana.
Geithner said Libor was the best available rate at the time. While “we knew the rate was vulnerable,” he said, “what we don’t know is whether we were disadvantaged by that choice.”
Senator Patrick Toomey, a Republican from Pennsylvania, said Geithner should have been more active using the “bully pulpit” to draw attention to Libor concerns.
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