Hayes trial hears BBA ditched plan to stop Libor 'low-balling'

Ex-BBA head of Libor admits industry body shouldn't have been in charge

John Ewan, former BBA director of Libor

In 2008 the British Bankers' Association (BBA) considered arranging "co-ordinated action by a large number of panel banks" to stop under-reporting of borrowing costs – but shelved the plan because it feared its member banks would disapprove, a London court heard today (June 9).

The draft recommendations were intended for the BBA's board of directors meeting on April 16, 2008, and included a "carrot and stick" approach to ensuring panel bank contributors of the daily reference rate submit accurate rates.

"If we can orchestrate a co-ordinated movement, no one bank needs to be out of line with the rest of the contributors," wrote Angela Knight, then the BBA's chief executive.

The memos were shown by the defence at the trial of ex-UBS and Citigroup trader Tom Hayes, who has been charged with eight counts of conspiracy to defraud, by conspiring with a large number of individuals at banks and brokers to rig Japanese yen Libor between 2006 and 2010 for his own financial gain.

Hayes has pleaded not guilty and says that attempts to influence the Libor rate were widespread.


In April 2008 John Ewan, who at the time was the BBA's director of Libor, sent an internal memo explaining that he had heard from market participants that the discrepancy between a bank's Libor quote and the deals they would conduct in the same day could sometimes be up to 30 or 40 basis points.

He wrote: "A bank quoting a dollar rate is saying publicly 'this is the rate at which I can fund myself'. If that bank then goes in to the market and takes funds considerably above this rate it doesn't do much for our credibility as the arbiter of the rates, or the bank's credibility."

Ewan – who was being cross-examined by the defence today – included some suggestions which were also seen in the final recommendations.

One such stick was a potential policy where banks would be asked periodically to show proof that they had made relevant deals at – or very close to – the Libor they had quoted. "If a contributor cannot provide evidence for this," the suggestions read, "we would recommend to the FX&MM [Foreign Exchange and Money Markets] Committee that they be removed from the panel. This would be highly embarrassing, and very damaging for a bank's reputation."

But Ewan had also warned in his original memo that the drawback to such an approach was that the FX&MM committee (which oversaw the process of Libor submissions) largely consisted of major contributors who were also the BBA's largest members, who might not approve of the idea.

Ewan admitted to the jury today: "With the benefit of hindsight, you probably shouldn't have major benchmarks run by trade bodies, and Libor no longer is."

The court heard that after the BBA's recommendations were circulated to committee members in April 2008, Ewan received a call from Miles Storey, then Barclays' head of group balance sheet, who warned that banks might take offence at the tougher rules and go so far as to opt out of the Libor setting process. "Ironically, you could get a request to be removed," Storey said.

He focused on the carrot: "The BBA should go to another bank and say 'if you think this is your Libor show me a trade where that is the case'." If there was any discrepancy, a bank would then be pressured to submit the more accurate rate.

According to the phone call transcript, Ewan's response to Storey was that "if you have a quiet conversation with a bank and then the next day their Libor quote jumps up 20 basis points I think a journalist would ask two questions: one, are you having trouble funding yourself? If not, two, were you lying beforehand?"

Ewan told the court that he was aware of concerns from the market that banks were submitting inaccurate rates, but he himself did not recognise industry-wide manipulation – or "low-balling" – at the time.

He said that the BBA reminded banks again and again to "follow the definition" of Libor and submit accurate rates.

The trial continues.

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