Tale of two central bankers

On different sides of the Atlantic today, (July 17th) two of the world's key central bankers were required to provide testimony to their respective legislators. In the morning Mervyn King, the governor of the Bank of England, was questioned by the Treasury Select Committee which is a body composed of UK legislators. He was asked pointedly, more than once, when it was that he became aware that there had been "rigging" of the LIBOR process. He claimed that he only became aware of this two weeks ago following the release of the findings of the investigations conducted by the FSA, the US Department of Justice and the CFTC.

On the other side of the Atlantic a few hours later, Ben Bernanke, chairman of the Federal Reserve, when asked by senators at a hearing of the Senate Banking Committee, appeared to acknowledge the fact that he had knowledge of misrepresentations in the LIBOR submissions process as far back as 2008.

It also has emerged that the Federal Reserve Bank of New York notified the Bank of England back in 2008 of its concerns about the process by which the British Bankers Association (BBA) constructed the LIBOR rate. Despite questions put to both Mervyn King and to his deputy Paul Tucker, both BOE officials performed an artful dance around the question of when they were first alerted to the "possibility" that there might have been some dishonesty and manipulative intent behind the submissions being made to the BBA by such banks as Barclays (among others).

While I would be more favourably disposed toward the apparent candour of Chairman Bernanke rather than to the evasive tap dancing of the two BOE officers, the question still remains as to why two of the most powerful financial institutions in the global financial system did nothing at the time to bring the BBA's benchmark setting ability under firm regulatory control.