Is the Bank of England a Libor-manipulating villain?

The BBC made much this week of a recording, from 2008, of one Barclays manager instructing another to submit artificially low rates into the daily interbank Libor fixing because ‘we’ve had some very serious pressure from the UK government and the Bank of England about pushing our Libors lower’. How shocking is that?

Well, perhaps not as shocking as it looks — even if it appears to contradict select committee evidence given by the Bank’s former deputy governor, Sir Paul Tucker. The latter part of 2008 saw a liquidity panic in the City, in which the interbank lending market all but froze. Spikes in Libor would have given the impression — or confirmed the reality — that even the major banks involved in the daily fixing were finding other banks less willing to lend to them, amplifying the panic. So it’s not hard to imagine some officials believing that ‘pushing our Libors lower’ was a justifiable pragmatic response to an emergency in the banking system, even if it meant asking ‘rate submitters’ to lie.