Gov. Rick Scott wants Floridas congressional delegation to dig deeper into a growing scandal involving the manipulation of important benchmark interest rates, which he says could reach beyond Barclays Capital and impact Florida businesses and residents.
He also wants the U.S. representatives and senators to address allegations that the Federal Reserve Bank of New York in 2008, when under the direction of President Obamas Treasury Secretary Timothy Geithner, may have been advised of problems with the reporting of the London interbank offered rate Libor.
Based on what has been reported already, these inappropriate banking practices have cost hard-working Floridians money, Scott wrote to Floridas congressional members on Tuesday.
As investigations into other institutions proceed, the question that must be answered is, 'How much money has this cost Florida families?
Barclays has agreed to pay $453 million, admitting it lied in its Libor submissions regarding borrowing costs.
Florida Attorney General Pam Bondi is among a handful of state attorneys general already trying to determine if they have jurisdiction over banks found manipulating lending benchmarks following British-based Barclays settlement with both U.S. and U.K. authorities.
According to Reuters, A spokesman for Florida Attorney General Pam Bondi said his office is aware of the recent settlement reached by British bank Barclays with U.S. and U.K. authorities and will look at the case to the extent that our office might have any jurisdiction in the matter.
Federal Reserve Chairman Ben Bernanke on Tuesday defended U.S. regulators before the Senate Banking Committee, saying he couldnt guarantee that Libor rates are accurate even today because few of the reforms proposed by U.S. regulators in 2008 were accepted by the British Banking Association, according to Fox Business News.
Bernanke explained during his testimony that regulators in 2008 were only aware that some banks may have been low-balling their borrowing costs when reporting to Libor in order to maintain an appearance of fiscal health, Fox Business News reported.
At the time, if a bank's borrowing costs were rising it meant lenders were worried about that banks ability to repay the loan --information that could have spooked markets and led to a Bear Stearns-like run on banks seen as unhealthy.
Bernanke is scheduled to appear before the House Financial Services Committee on Wednesday.
As congressional hearings continue, Scott wrote, I would sincerely appreciate your consideration and investigation of the potential impacts of Libor manipulation on our residents as well as a careful review to ensure the federal government acted to sufficiently protect the cost of living, retirement and investments of Floridians.
The LIbor scandal is "so big I don't think people have got their minds around it," says Jim Rickards, a partner at JAC Capital Advisors, a New York-based hedge fund. "This is the largest financial scandal I've seen in my career."
If $500 trillion of swaps are based on Libor and the rate was manipulated by 10 basis points over five years, that's $2.5 trillion of fraudulent transactions -- more than the combined capital of the nation's five largest banks, Rickards explains. "Congress may have to step in to limit the damages because it would threaten the banking system."
Reach Jim Turner at jturner@sunshinestatenews.com or at (772) 215-9889.
