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Congress grills Geithner on passive role in rate-rigging

india Updated: Jul 26, 2012 22:17 IST
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The former president of the New York Federal Reserve, Timothy F Geithner, was questioned sharply on Wednesday about the rate-rigging scandal that has consumed the banking industry, as lawmakers at a House hearing asked why he had failed to thwart wrongdoing during the financial crisis.

Geithner, now the treasury secretary, also acknowledged that he had never alerted federal prosecutors to the libor (London interbank offered rate) manipulation. The revelation further stoked the ire of Republicans, including some regular detractors of Geithner.

“It appears you treated it as almost a curiosity, or something akin to jaywalking, as opposed to highway robbery,” said Jeb Hensarling, Republican, Texas.

The hearing before the House Financial Services Committee was the latest forum to scrutinize regulators’ role in the libor scandal. Lawmakers have pressed the New York Fed and its British counterparts to explain why illegal actions went unchecked for years.

But Geithner escaped relatively unscathed from the more than two-hour hearing as many Democrats rushed to his defence. Barney Frank, a Massachusetts Democrat, declared that it was the banks, not regulators, that "grievously misbehaved."

Geithner, who was also asked to outline the broader state of Wall Street regulation, challenged his Republican critics, stating that he was “very concerned” about the interest rate problem and had promptly notified other regulators of his worries. British authorities who oversee the rate, he said, failed to heed his warnings.

The controversy centers on the libor, a measure of how much banks charge to lend to one another. A global investigation into more than a dozen big banks has called into question the integrity of this rate.

Last month, Barclays struck a $450 million settlement with American and British authorities over accusations that it had undermined libor to bolster its trading profits and project a strong image of its health.

On Wednesday, the European Commission announced plans to make the manipulation of benchmark interest rates a criminal offence. (NYT)