Skip Navigation

Close and don't show again.

Your browser is out of date.

You may not get the full experience here on National Journal.

Please upgrade your browser to any of the following supported browsers:

Bernanke to Face Grilling on Rate-Rigging Scandal Bernanke to Face Grilling on Rate-Rigging Scandal

This ad will end in seconds
Close X

Want access to this content? Learn More »

Forget Your Password?

Don't have an account? Register »

Reveal Navigation



Bernanke to Face Grilling on Rate-Rigging Scandal

Federal Reserve Chairman Ben Bernanke will be in the hot seat when he visits Capitol Hill this week. His testimony on the economy and financial conditions will give lawmakers the first chance to publicly question a regulator on alleged rigging of a global benchmark interest rate known as Libor.

A series of bank scandals over the past year — including the collapse of brokerage firm MF Global and missing customer money in the fall and JPMorgan Chase’s massive trading losses this spring — have brought financial regulation back into the spotlight. The scandal surrounding U.K.-based Barclays is the latest example of bank misbehavior that has come to light in the aftermath of the financial crisis. It could also be the most far-reaching.


“[JPMorgan CEO] Jamie Dimon was criticized for characterizing their London derivatives losses as a tempest in a teapot. Compared to this, he could be right,” said Joseph Engelhard, senior vice president at Capital Alpha Partners, a Washington-based policy forecasting firm. The fallout from the rate-manipulation revelations is only expected to grow as regulators probe other banks for similar wrongdoing and as the economic implications of the scandal become clearer.

Bernanke will deliver his prognosis on the economy when he appears before the Senate Banking Committee on Tuesday and the House Financial Services Committee on Wednesday. His view is expected to be a gloomy one but he will also face a lot of questions about the Libor scandal.

The Fed chairman’s appearances on the Hill are often contentious. With Congress gridlocked and the Fed one of the few actors working to correct the economy’s course, the central bank’s actions aren’t always popular with lawmakers.


The testimony comes as lawmakers on both sides of the aisle have vowed to investigate the banks as well as the regulators who oversee them.

Just like the banks and executives they oversee, regulators who were involved should be held to account for any failures to stop wrongdoing that they knew, or should have known about,” a group of twelve Democratic senators wrote in a Thursday letter to Attorney General Eric Holder and the members of the Financial Stability Oversight Council. Republican Rep. Randy Neugebauer, who chairs the House Financial Services subcommittee on oversight and investigations, requested transcripts from the New York Fed’s communications with Barclays on setting interbank offered rates during the financial crisis. They were published last week.

Bernanke was Fed chairman at the time the alleged rate-rigging was going on, and the documents published by the New York Fed reveal that the Fed Board of Governors was notified of potential rate-rigging in 2008. It’s unclear what next steps were taken.

Lawmakers are expected to grill Bernanke on what he knew and when, as well as how the Fed dealt with the reports internally.


His questioning will set the tone for testimony by Treasury Secretary Timothy Geithner later this month. But Geithner is expected to face even more pointed questioning. He was president of the New York Fed, which is responsible for supervising the U.S. banks that participate in Libor-setting, when the scandal broke. Lawmakers want to look into Geithner’s response to the inaccurate submissions and will press him on whether he sought to find out if U.S. banks were engaged in similar behavior.

Documents released by the New York Fed on Friday gave only a partial answer. They made clear that Geithner was aware of the potential manipulation in 2008 and that he recommended policy changes to the Libor submission process to Bank of England governor Mervyn King. But they don’t detail Geithner’s involvement after he sent the June 1 e-mail.

During his three-and-a-half year tenure as Treasury secretary, Geithner has at times faced criticisms from Democrats and Republicans for being too cozy with Wall Street and for his response to the financial crisis. The Barclays scandal may rekindle some of those old charges.

As a member of the Obama administration, Geithner is likely to be viewed by Republicans as a ripe political target. The Fed is an independent agency and Bernanke was named to the central bank by Obama’s Republican predecessor, President George W. Bush.

“I think [Republicans] would probably score fewer points against the administration if they, you know, shoot at Bernanke than if they shoot at Geithner,” said Dean Baker, codirector of the Center for Economic and Policy Research.

comments powered by Disqus