PUBLISHED: 20:29 EST, 17 July 2012 | UPDATED: 20:30 EST, 17 July 2012
Federal Reserve Chairman Ben Bernanke has come under fire for passing the buck on the LIBOR scandal insisting the agency had done everything in its power to respond to evidence of banks alleged rate-fixing.
Testifying at the Senate Banking Committee today, Bernanke said that the Fed was powerless to do anything beyond contacting British authorities.
However, the blame shifting was immediately seized on by lawmakers from both ends of the political spectrum, who questioned why the Feds had not warned the public about concerns about the London interbank offered rate.
Sen. Pat Toomey, R-Pa., pressed Bernanke on why regulators didn’t address ‘systematic’ problems that damaged the integrity of the rate.
‘Why have we allowed it to go on the old way when we knew it was flawed?’ Toomey asked.
‘Because the Federal Reserve had no authority to change it,’ Bernanke replied.
Despite being set in London, the LIBOR is the average interest rate agreed by the world’s largest international banks and indexes the short and long term interest rates for 10 currencies across 15 different time zones.
The rate affects the interest on many loans, including mortgages and business loans.
An incredible $360 trillion dollars in loans around the world are indexed to the LIBOR, a figure which is five times the value of the world’s entire annual GDP.
The process for setting LIBOR came under scrutiny when Britain’s Barclays bank admitted two weeks ago that it had submitted false information to keep the rate low. They were fined $453 million.
Bernanke even admitted to doubting whether the LIBOR rate is reliable today saying, ‘I can’t give that assurance with full confidence.’
Bernanke acknowledged that manipulation of LIBOR by banks and traders had undermined confidence in financial markets, and he called the process of calculating the rate ‘structurally flawed.’
However, he passed the blame to the British trade group in charge of the rate: ‘The British Bankers Association did not adopt most of the suggestions that were made by the Federal Reserve Bank of New York.’
Although the spotlight was shone on the widening LIBOR scandal, the primary purpose of Bernanke’s appearance was to deliver the agency’s biannual monetary policy report, where he offered a gloomy view of the economy’s prospects.
Read more: http://www.dailymail.co.uk/news/article-2175148/Fed-chief-Ben-Bernanke-passes-blame-LIBOR-scandal-saying-Feds-did-could.html#ixzz2100DoSgR