NEW YORK, July 13 (UPI) -- The Federal Reserve Bank of New York says it began looking into problems with Libor in 2008 after a Barclays employee said interest rates were under-reported.
The New York Fed released documents related to the matter Friday at the request of a U.S. House subcommittee.
U.S. Rep. Randy Neugebauer, R-Texas, had asked the New York Fed to provide all transcripts that relate to communications with London-based Barclays Bank regarding the setting of interbank offered rates from August 2007 to November 2009.
The New York Fed said the materials provided to Neugebauer "document our efforts in 2008 to highlight problems with Libor and press for reform. We will continue to review our records and actions and will provide updated information as warranted."
Britain's Financial Services Authority has fined Barclays $450 million for trying to manipulate the London Interbank Lending Rate.
Libor measures the average rate banks must pay to borrow from rival banks for a specific period of time -- from a few weeks to a year. Banks on the Libor panel self-report the rate at which they would be able to borrow funds in the interbank money market.
"As the interbank lending markets dried up these estimates became increasingly hypothetical," the Fed said Friday in a statement.
Following the onset of the financial crisis in 2007, Fed analysts engaged with market participants -- including staff at Barclays -- to better understand the nature of market stress.
"In the course of these exchanges, market participants reported dysfunction in the form of illiquidity and anomalous pricing across many different markets," the Fed said. "Among the information gathered through markets monitoring in the fall of 2007 and early 2008, were indications of problems with the accuracy of Libor reporting."
The Fed said suggestions that some banks could be underreporting their Libor in order to avoid appearing weak were present in anecdotal reports and mass-distribution e-mails, including from Barclays, as well as in a December 2007 phone call with Barclays noting that reported 'Libors' appeared unrealistically low.
On April 11, 2008, a Fed analyst questioned a Barclays employee in detail as to the extent of problems with Libor reporting.
"The Barclays employee explained that Barclays was underreporting its rate to avoid the stigma associated with being an outlier with respect to its Libor submissions, relative to other participating banks," the Fed said. "The Barclays employee also stated that in his opinion other participating banks were also underreporting their Libor submissions."