GOP senators pressure Geithner on Libor 'complacency'

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The controversy over the interest rate, which serves as a benchmark for a range of consumer products like mortgages, ignited this summer after the British Bank Barclays agreed to pay nearly half a billion dollars to settle charges with U.S. and U.K. regulators that it worked to manipulate the rate for years. Libor is set based on interbank lending reports from a group of 18 banks, including three based in the United States, and is monitored by the British Bankers Association.

Barclays went on to charge that other banks were conspiring to rig the rate, and Geithner was swept up in the controversy as well, because concerns about Libor first emerged at the New York Federal Reserve Bank when he was running it.

Geithner defended his behavior for hours before skeptical lawmakers in July, saying he took the appropriate steps by notifying regulators in the United States and United Kingdom. 

"We brought those concerns to their attention and we felt, and I still believe this, that it was really going to be on them to take responsibility for fixing this," he told the House Financial Services Committee.

He added that the government was looking into alternatives to Libor going forward, but that the rate continued to be used as a benchmark after concerns emerged because it remained the best option available.

In their letter, the senators said the inability to replace Libor has contributed to "emerging litigation that threatens to clog our courts with multi-billion dollar class action lawsuits" and higher costs for state and local governments that rely on interest rate swaps pegged to Libor.

"It now appears that your decision to, until now, maintain public silence concerning the manipulation of Libor has led to billions in legal fees and has directly led to higher local, municipal, and state debt burdens," they wrote.

On Friday, the Financial Services Authority, Britain's financial regulator, laid out a plan to overhaul and enhance oversight of Libor, including removing responsibility for oversight from the British Bankers' Association.