New York Fed’s Fake Borrowing Rates Raise Ghosts of Libor’s Fake Rates

December 19, 2019

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Occupy Wall Street Protesters Outside the New York Fed, September 17, 2012

When it comes to Wall Street’s mindset, the thinking is that it’s legal if you can get away with it. That mindset seems to have captured the Federal Reserve Bank of New York which secretly pumped trillions of dollars into insolvent banks in violation of its statutory mandate during the financial crisis; is alleged to have fired a bank examiner for refusing to alter her negative examination of Goldman Sachs; and failed to investigate a litany of crimes to which it was made aware. (See U.S. Senate Tries Public Shaming of New York Fed President Dudley.)

One of the crimes that the New York Fed failed to bring to the attention of U.S. law enforcement was mega banks cheating on the borrowing rates that they were reporting as their London InterBank Offered Rate or Libor, a benchmark interest rate used globally to settle derivative trades and used as a reference rate to set mortgage rates, credit card rates, student loans and other consumer loans.

The largest banks on Wall Street have collectively paid billions of dollars to settle charges around the globe that they rigged Libor rates to benefit their own trading positions or, in some cases, to make themselves look healthier than they actually were by submitting a Libor rate that was below their true cost of borrowing from other banks.

For example, on June 27, 2012 the U.S. Department of Justice fined the U.K. trading house and bank, Barclays, $160 million for submitting false Libor borrowing costs.

According to the Justice Department, “between approximately August 2007 and January 2009, in response to initial and ongoing press speculation that Barclays’s high U.S. Dollar LIBOR submissions at the time might reflect liquidity problems at Barclays, members of Barclays management directed that Barclays’s Dollar LIBOR submissions be lowered. This management instruction often resulted in Barclays’s submission of false rates that did not reflect its perceived cost of obtaining interbank funds.”