None of the three U.S. banks—Bank of America, Citigroup, or JPMorgan Chase—involved in establishing the London interbank offered rate, which remains under investigation for alleged rigging, have been asked by Congress to answer questions about what they knew about manipulation in the market or if they were involved, National Journal has learned.
The revelation comes as members of Congress intensify their scrutiny of U.S. regulators and lament concerns about growing public distrust in the banking sector fueled by the financial crisis and reinforced by repeated controversies since, such as the recent trading losses at JPMorgan and the Halloween collapse of MF Global.
As it stands, the House Financial Services and Senate Banking committees are preparing to grill Treasury Secretary Timothy Geithner next week about whether his response to the Libor rigging was adequate. Geithner became aware of a potential problem while he was running the Federal Reserve Bank of New York in 2007 and suggested recommendations to the Bank of England in 2008, but the British regulator claims he did not sound the alarm bells about misconduct. The Treasury secretary's testimony will come after two days of aggressive questioning of Federal Reserve Board Chairman Ben Bernanke by members of the two committees who pressed him on whether U.S. regulators dropped the ball on Libor.
Both the House and Senate committees that oversee the financial-services sector have launched a series of briefings in the wake of the Barclays $453 million settlement for intentionally manipulating the benchmark rate, which is linked to $800 trillion worth of loans and securities worldwide from mortgages to derivatives contracts.
But so far, neither committee of jurisdiction, the oversight committees, nor any of the individual congressional offices have reached out to the U.S. banks that help establish Libor, and asked them to come in for meetings, briefings, hearings, or even to answer questions about their specific roles at the time of the misconduct at Barclays, according to representatives from all three of the banks, who were not authorized to speak about congressional communication publicly, as well as staffers of both political parties from both committees and several individual offices.
There is no evidence that any of the U.S. banks acted inappropriately, but it may be surprising that lawmakers who oversee them have not reached out to ask any questions given the outrage over the most recent scandal and criticism of those who were supposed to be overseeing the system.
The spotlight on the subject has intensified, particularly amid a flurry of lawsuits and ongoing criminal and civil investigations by the Justice Department, the Commodity Futures Trading Commission, and British enforcement officials, spanning several of the 18 banks that set Libor. Many analysts expect more banks will reach settlements and a Barclays executive predicted that additional fines at other institutions will put Barclays misconduct into perspective.
The committees’ reaction has been to expand previously scheduled hearings with Bernanke and Geithner on unrelated issues to cover questions about the Libor scandal and reassess from there. They have each separately launched a series of similar bipartisan briefings on the subject with regulators, Barclays and the Congressional Research Service. Presumably the U.S. banks could eventually be contacted, but so far the regulators remain the focus of Capitol Hill's attention.
Rep. Randy Neugebauer, R-Texas, the House Financial Services Oversight Subcommittee's chairman, has been credited with taking the most aggressive action on the issue, requiring the Federal Reserve Bank of New York to provide documents on its communication about the Barclays manipulation, which were received last week.
Neugebauer said this week that he plans to ask the Fed for more documents pertaining to communications it had with the other banks that set the key rate, particularly the three U.S. institutions.
“It would be extremely difficult for just one bank to influence the Libor market,” he said in an interview on Wednesday. “So, one of the things we want to see is, were there other discussions in that timeframe? If anybody said, ‘Are any of these other banks doing that?’ Just to learn how widespread this was.”
But he and his colleagues on the Financial Services Committee, including panel ranking member Barney Frank, D-Mass., are taking the stance that the process should be methodical and should focus first on working with the Fed to obtain information and establish the facts.
“We are studying it and figuring out what happened,” Frank said in an interview earlier this week. Although he said he was “disappointed” in what he’s heard so far, he said he did not want to jump to conclusions.
“It depends on what you learn and what you hear; you don’t go into this with a precooked idea,” he said, about how the panel would conduct its inquiry. “As to which banks, and were there other banks, we are still looking into this,” he said.
For his part, Neugebauer said, “We’ll press for additional documents and then we’ll look and see whether a hearing is warranted.”
He added that his office has not reached out to any of the U.S. banks directly.
“We have not at this particular point in time. Again we have been reviewing the documents that the Fed sent us and then we will move on to the next step,” he said.
A spokesman for Senate Banking Committee Chairman Tim Johnson, D-S.D., Sean Oblack, was vague about the committee’s plans.
“As Chairman Johnson previously indicated, the committee has been conducting bipartisan briefings with relevant parties to learn more about the LIBOR allegations and related enforcement actions,” he said.