By Peter Schroeder - 07/23/12 04:55 PM EDT
Scrutiny of the Libor, which serves as a benchmark for other borrowing, climbed after the British bank Barclays admitted to years of reporting false numbers on the rate in an effort to protect itself.
The Libor is set by banks self-reporting their costs for borrowing from one another. Barclays paid nearly half a billion dollars to U.S. and U.K. regulators after admitting to reporting false numbers that would either reap profits on trades or protect its reputation during the financial crisis.
Neugebauer had already demanded any communications the New York Fed had with Barclays during the time the interest rate rigging occurred. The regional bank released documents that showed officials heard rumblings of problems with the rate as early as 2007, with Geithner made aware of the issues by 2008.
According to a transcript provided by the New York Fed, an unidentified Barclays employee told a Fed official in April 2008 that the bank was effectively being forced to report a false lower borrowing rate because other banks were doing so as worries about the financial system grew. When the bank reported authentic borrowing figures, it ended up looking weaker than other banks that were reporting artificially low rates, the employee said.
The bank also released an email Geithner sent the day of that conversation to the Bank of England that made a number of recommendations for how to improve the integrity of the rate.
Both Geithner and Fed Chairman Ben Bernanke have defended the steps the Fed took when the problems emerged, saying they referred the matter to the proper authorities. However, lawmakers pressed Bernanke when he appeared before Congress earlier this month on why the Fed did not do more if it was aware of problems.
In his letter, Neugebauer seems unconvinced it did enough.
"As you know, the role of government is to ensure that our markets are run with the highest standards of honesty, integrity, and transparency," he wrote. "Therefore, any admission of market manipulation — regardless of the degree — should be swiftly and vigorously investigated."