The Justice Department is now expected to file criminal charges this year against at least one big bank in connection with the rate-rigging scandal, while building cases against other banks and their employees. This is welcome news: prosecuting financial crimes is essential to restoring public trust in the banking system and in the willingness of the authorities to police it.
Meanwhile, the furor over how banks fiddled with the London interbank offered rate, or Libor, for their own advantage is now in the buck-passing phase, as bankers and regulators alike attempt to minimize their role.
It is a disturbing and disheartening spectacle. On CNBC last week, Treasury Secretary Timothy Geithner defended his actions in 2008, when he headed the Federal Reserve Bank of New York — a time when the New York Fed knew Barclays was reporting false rates but did not stop or expose the misconduct. Mr. Geithner told CNBC he briefed other American regulators and British authorities on his concerns that the Libor process was “flawed and vulnerable to misrepresentation.” But to hear him tell it, the issue was a plumbing problem, not a potentially criminal and certainly improper pattern of rate rigging.
The British authorities to whom Mr. Geithner directed his concerns — Mervyn King and Paul Tucker, the governor and deputy governor, respectively, of the Bank of England — have testified that the New York Fed’s warnings did not set off any alarms because they contained no allegations of wrongdoing and seemed to echo many concerns raised about technical difficulties in setting the rate. But documents released on Friday by the Bank of England suggest that the central bank knew about potential manipulation in 2007.
Further investigation will have to settle the who-knew-what-when controversy. For now, the trans-Atlantic back and forth is yet another example of the deplorable state of financial regulation during the run-up to the financial crisis”