Senate Banking Committee member Pat Toomey on Tuesday said because the Treasury and Federal Reserve knew of the distortions affecting Libor in 2008, it raises questions about what was done to protect the benchmark interest rate now surrounded by scandal.
"Clearly the motivation at that time was not to quell the crisis," Toomey told the Alley. "I was very surprised that the irregularities were well understood even at the most senior levels of the Fed and Treasury five years ago and nothing was done."
Asked why the Fed might have done that, Toomey said, "I don't know why. I asked [Fed Chairman Ben Bernanke], and I didn't think he had a good answer."
Toomey expressed concern over the scandal's widening scope.
"Literally trillions of financial transactions every year in America are tied to that index, the top regulators of American financial institutions knew that there were distortions in that index and they did nothing to change what was going on when there were many ways when we could have avoided what was going on," he said.
The Pennsylvania Republican said it's not yet clear if American banks were involved in the same "kind of distortions" as Barlcays, the British bank at the epicenter of the scandal.
Bernanke testified before the Senate Banking Committee on Tuesday and defended the response of the New York Fed, which learned of potential rate manipulation in 2008. Bernanke said there was "rapid followup" by bank officials.
Barclays, according to The New York Times, was accused of reporting false rates that boosted its profits. At least nine government agencies are investigating the scandal, including in Japan, Switzerland and Canada, the Times reported.