U.S. Treasury Secretary Timothy Geithner, under pressure for not doing enough to stop fraudulent manipulation of a key benchmark interest rate, told lawmakers on Wednesday he alerted the appropriate authorities "early on."
In his first chance to defend his actions on the widening Libor scandal before Congress, Geithner said he became aware of the problem in 2008, when he was president of the New York Federal Reserve Bank, an influential bank regulator.
Documents released by the Fed bank show that, as early as August 2007, Barclays told Fed analysts about possible problems with low levels of Libor.
"We, at least I, first learned about those concerns in the early parts of spring of 2008 and we acted very quickly at that stage. At that time, this is in the spring of 2008, we took a very careful look at these concerns, we thought those concerns were justified," Geithner said.
"And we took the initiative to bring those concerns to the attention of the broader U.S. regulatory community, including all the agencies that have responsibility for market manipulation and abuse," he said, citing a specific meeting of the president's working group on financial markets.
That group includes the Commodity Futures Trading Commission, the Securities and Exchange Commission and the Treasury Secretary himself.
Lawmakers were not buying it, noting that the Fed itself continued to use Libor as a benchmark in its emergency lending programs, including the controversial bailout of AIG.
Congressman Scott Garrett asked Geithner why his response in the face of alleged fraud had been so muted.
"You have been before this committee countless numbers of times since 2008 and if this is the crime of the century, as so many people are reporting today, never once did you ever once come and mention it as being a problem, never once did you come here and say this is what you're going to do about it," said Garrett.
Geithner has repeatedly defended his actions, saying he told the British authorities who oversee the British Bankers' Association (BBA) that sets Libor.
"We felt, and I still believe this, that it was really going to be on them," he said. "These concerns were in the public domain," he added, citing newspaper reports of alleged rate-rigging by large global banks.
The BBA said it received reports querying rates from Reuters' parent Thomson Reuters, which compiles and calculates Libor data on behalf of the trade body, in 2008.
It passed these on to the independent committee -- which include s representatives from banks, the money markets, corporate treasurers and exchanges -- that oversees the process.
"In 2008, reports from Thomson Reuters were submitted to the independent Foreign Exchange and Money Markets Committee which was then able to request further information from submitting banks," the BBA said on Thursday following a BBC report.
But it added: "The BBA was at no time aware that rates were being manipulated but, as a result of the overall picture [of which Thomson Reuters' reports played a part] of a widely dysfunctional market...the BBA launched its 2008 consultation."
Thomson Reuters, whose role extends to "validity checks" to ensure rates submitted by banks are not subject to errors, provides a weekly report to the BBA of all banks that are contacted about their individual Libor submissions, their response and any recommended action Thomson Reuters might have.
"Thomson Reuters is proactively in touch with all relevant authorities and investigators to make recommendations on how Libor may be strengthened," a spokeswoman said.
GEITHNER UNDER ATTACK
Geithner, who is expected to step down even if President Barack Obama is reelected, came under fresh attack from members of the House of Representatives Financial Services Committee. Congressman Jeb Hensarling seized on the Fed's continued use of Libor.
"It appears that the early response was to keep using it, which means it appears that you treated it as almost a curiosity or something akin to jay-walking instead of highway robbery," said Hensarling.
Geithner replied: "I think that was the best choice at the time."
Barclays Plc has since admitted to giving false information as part of setting the interest rate in a settlement with U.S. and UK authorities. Dozens of big banks, such as JPMorgan Chase & Co, are under investigation.
The House Financial Services Committee has asked the New York Fed for all communications going back to August 2007 with the banks that helped set Libor, or the London interbank offered rate.
The first trove of documents from the New York Fed showed that Barclays had flagged concerns as early as 2007 and Geithner sent the email to Bank of England Governor Mervyn King in June 2008 with the Libor recommendations.
Last week, Fed Chairman Ben Bernanke told lawmakers the process for setting the rate was structurally flawed and said reforms were in the hands of the private UK banking group responsible for Libor.
(Aditional reporting by Kirstin Ridley in London, editing by Neil Stempleman, James Dalgleish and Alexander Smith)