LIBOR (FSA Investigation)

Ben Gummer Excerpts

Thursday 28th June 2012 Commons Chamber

[Mr Osborne]

My hon. Friend is right that the compliance regime is absolutely the first line of defence in the financial services industry. To be fair, Barclays did raise concerns about the LIBOR market operation in late 2007 and early 2008. I think that we can draw a distinction, as the FSA does, between what was going on in 2005-06 and early 2007 and what happened once the crisis hit. He is absolutely right that the compliance regime is vital, and if there are any banks listening to what has happened today that are not looking carefully at their compliance regimes and ensuring they are up to scratch, I think that they are being pretty foolish.

[Ben Gummer (Ipswich) (Con)]

The Chancellor will know that concerns about the setting of LIBOR go back some time. A paper circulated by New York university’s Stern business school in 2008 raised the issue of the manipulation of LIBOR. Indeed, in that year the panel changed the criteria for and composition of the setting of LIBOR because of concerns about the fairness of the rate. What investigation will he undertake about the concerns raised at the time, whether they were picked up by the FSA, whether the American authorities passed any concerns to the Treasury and the FSA and, if so, what was done about them?

[Mr Osborne]

My hon. Friend is right that concerns were raised in late 2007 and in 2008 once the markets had frozen and become very illiquid. Barclays raised its concerns with the FSA, which is why the report draws a distinction between the situation before the summer of 2007 and the situation after, because different things were going on. In 2007-08 Barclays, and potentially other banks, were concerned about their reputation and the high cost of funding they were being charged, so he is right to draw that distinction. The FSA began investigating the complaints in 2009, as set out in the report. He asks a good question on whether any evidence was passed to the authorities by international bodies or other Governments. That is not in the report, so I am happy to get back to him on whether there was anything specific.