Guards stand at the door for the Federal Reserve Bank in New York, May 2, 2011. 
 
 The Federal Reserve Bank of New York may have known as early as August 2007 that the setting of global benchmark interest rates was flawed. Following an inquiry with British banking group Barclays Plc in the spring of 2008, it shared proposals for reform of the system with British authorities. 
 
 The role of the Fed is likely to raise questions about whether it and other authorities took enough action to address concerns they had about the way Libor rates were set, or whether their struggle to keep the banking system afloat through the financial crisis meant the issue took a backseat. 
 
 A New York Fed spokesperson said in a statement that "in the context of our market monitoring following the onset of the financial crisis in late 2007, involving thousands of calls and emails with market participants over a period of many months, we received occasional anecdotal reports from Barclays of problems with Libor. 
 
 "In the spring of 2008, following the failure of Bear Stearns and shortly before the first media report on the subject, we made further inquiry of Barclays as to how Libor submissions were being conducted. We subsequently shared our analysis and suggestions for reform of Libor with the relevant authorities in the UK." 
 
 The Fed statement did not provide the precise timing of the communication with the British authorities. Bear Stearns collapsed in early March 2008 and was then acquired by JPMorgan. 
 
 Meanwhile, legislators on Capitol Hill have signaled they are interested in learning more about what Fed officials knew with regards to allegations of Libor manipulation. 
 
 On July 9, Rep. Randy Neugebauer, chairman of a subcommittee of the House Financial Services Committee, sent a letter to the New York Fed asking for transcripts of any "communications with Barclays regarding the setting of interbank offered rates from August 2007 to November 2008." 
 
 In the letter, a copy of which was reviewed by Reuters, the Texas Republican asked New York Fed President William Dudley to provide the transcripts by Friday. 
 
 Tim Johnson, who chairs the Senate Banking Committee, said on Tuesday he was concerned by the allegations of the potential "widespread manipulation" of Libor and had directed his staff to schedule briefings on the issue. 
 
 Johnson also said the committee planned to ask Treasury Secretary Timothy Geithner and Federal Reserve Chairman Ben Bernanke about the allegations at hearings later this month. 
 
 Barclays last month agreed to pay $453 million to British and U.S. authorities to settle allegations that it manipulated Libor, a series of rates set daily by a group of international banks in London across various currencies. 
 
 The rates are an integral part of the world financial system and have an impact on borrowing costs for many people and companies as they are used to price some $550 trillion in loans, securities and derivatives. 
 
 By manipulating Libor, banks could have made profits or avoided losses by wagering on the direction of interest rates. During the enormous liquidity problems in the financial crisis they could, by reporting lower than actual borrowing costs, have signaled that they were in better financial health than they really were. 
 
 So far, the scandal has been more of a British affair, prompting the resignation of Barclays top three executives, condemnation from the British government amid a public outcry, and questions about the lack of oversight from British regulators. 
 
 The Bank of England's Deputy Governor Paul Tucker on Monday even had to deny suggestions that government ministers had pressured him to encourage banks to manipulate Libor. 
 
 But the deepening investigation by regulators in Britain, the United States, and other countries is expected to uncover problems well beyond Barclays and British banks. 
 
 More than a dozen banks are being investigated for their roles in setting Libor, including Citigroup, JPMorgan Chase & Co, Deutsche Bank, HSBC Holdings Plc, UBS and Royal Bank of Scotland.. 
 
 JAWBONING 
 
 Regulators, including the New York Fed, had a responsibility "to force greater integrity and cooperation," and it had clearly reviewed the situation and had the resources to investigate, said Andrew Verstein, an associate research scholar at Yale University, who has written about Libor. "Obviously they considered this to be within their orbit." 
 
 Many of the requests for improper Libor submissions came from traders in New York. 
 
 As one of the world's most powerful regulators, the New York Fed has the power to "jawbone" banks to force them to make tough decisions, said Oliver Ireland, former associate general counsel at the Federal Reserve in Washington and now a lawyer at Washington law firm Morrison & Foerster. 
 
 Still, he said by the autumn of 2008, the New York Fed's focus was locked on the impact of the meltdown of Lehman Brothers and AIG as it sought to prevent a global economic disaster. 
 
 Barclays said in documents released last Tuesday that it first contacted Fed officials to discuss Libor on August 28, 2007, at a time when credit problems arising from the U.S. housing bust were beginning to mount. It communicated with the Fed twice that day. 
 
 Between then and October 2008, it communicated another 10 times with the U.S. central bank about Libor submissions, including Libor-related problems during the financial crisis, according to the documents. 
 
 In its document listing those meetings as well as ones with British authorities, Barclays said: "We believe that this chronology shows clearly that our people repeatedly raised with regulators concerns arising from the impact of the credit crisis on LIBOR setting over an extended period." 
 
 As a bank doing business in the United States, Barclays U.S. operations would have come under the Fed's purview. This would have been even more the case after it acquired the investment banking and trading operations of the bankrupt Lehman Brothers in September 2008. 
 
 Officials with the New York Fed talked to authorities in Britain about problems with the calculation of Libor and also heard from market participants about whether an alternative could be found for Libor, people familiar with the situation said. 
 
 In early 2008, questions about whether Libor reflected banks' true borrowing costs became more public. The Bank for International Settlements published a paper raising the issue in March of that year, and an April 16 story in the Wall Street Journal cast doubts on whether banks were reporting accurate rates. Barclays said it met with Fed officials twice in March-April 2008 to discuss Libor. 
 
 "FIXING LIBOR" 
 
 According to the calendar of then New York Fed President, Timothy Geithner, who is now U.S. Treasury Secretary, it even held a "Fixing LIBOR" meeting between 2:30-3:00 pm on April 28, 2008. At least eight senior Fed staffers were invited. 
 
 It is unclear precisely what was discussed at this meeting or who attended. Among those invited, along with Geithner, was William Dudley, who was then head of the Markets Group at the New York Fed and who succeeded Geithner as its president in January 2009. Also invited was James McAndrews, a Fed economist who published a report three months later that questioned whether Libor was manipulated. 
 
 "A problem of focusing on the Libor is that the banks in the Libor panel are suspected to under-report the borrowing costs during the period of recent credit crunch," said that report in July 2008 that examined whether a government liquidity facility was helping ease pressure in the interbank lending market. 
 
 When asked for comment, McAndrews directed questions to a New York Fed spokeswoman. Dudley could not be immediately reached for comment. 
 
 To be sure, the Fed's reports have sometimes been inconclusive. One from last month - only shortly before the Barclays settlement was announced - found that "while misreporting by Libor-panel banks would cause Libor to deviate from other funding measures, our results do not indicate whether or not such misreporting may have occurred." 
 
 However, a 2010 draft of a related paper had said that banks appeared to be paying higher rates to borrow from other banks during the financial crisis compared with the levels they reported. 
 
 One step the New York Fed could have taken in 2008 when questions initially were raised was to find a way to get its staff embedded in the Libor calculation process, Yale's Verstein said. 
 
 There, they could use the Fedwire Funds Service - an electronic system through which banks settle interbank loans between one another - as a backstop to measure whether banks were accurately reporting borrowing costs. Then after the financial crisis had passed, regulators could have helped "urge on a newer and better system," he said. 
 
 The New York Fed was not part of the Barclays settlement, which was the first major resolution in the Libor probe. 
 
 The U.S. Commodity Futures Trading Commission, the U.S. Department of Justice, and the Financial Services Authority in Britain, settled with Barclays. 
 
 NO ULTIMATE RESPONSIBILITY 
 
 The scandal has thrown into sharp relief a potential regulatory gap: No single regulator appears to have had ultimate responsibility for making sure rates banks submitted were honest. 
 
 On Monday, the Bank of England's Tucker called the issue of banks improperly submitting rates a "cesspit." 
 
 In documents released with the Barclays settlement, the CFTC said Barclays traders on a New York derivatives desk asked another Barclays desk in London to manipulate Libor to benefit trading positions. 
 
 "For Monday we are very long 3m (three-month) cash here in NY and would like the setting to be set as low as possible," a New York trader emailed in 2006 to a person responsible for setting Barclays rates. 
 
 Darrell Duffie, a Stanford University finance professor who has followed the Libor issue for several years, said that he believed regulators were "on the case reasonably quickly" after questions were raised in 2008. 
 
 "It appears that some regulators, at least at the New York Fed, indeed knew there was a problem at that time. New York Fed staff have subsequently presented some very good research on the likely level of distortions in Libor reporting," Duffie said. "I am surprised, however, that the various regulators in the U.S. and UK took this long to identify and act on the misbehavior." 
 
 (Editing by Martin Howell, Simon Cameron-Moore and Andrea Ricci) ||||| Pete Marovich/European Pressphoto Agency 
 
 When Timothy F. Geithner ran the Federal Reserve Bank of New York, he acknowledged fundamental problems with the process for setting key interest rates in the midst of the 2008 financial crisis, according to documents provided to The New York Times. 
 
 Mr. Geithner, who is now the United States Treasury secretary, questioned the integrity of the benchmark as reports surfaced that Barclays and other big banks were misrepresenting the rates. In 2008, Barclays had several conversations with New York Fed officials about the matter. 
 
 Article Tools 
 
 Mr. Geithner then reached out to top British authorities to discuss issues with the interest rate, which is set in London. In an e-mail to his counterparts, he outlined reforms to the system, suggesting that British authorities “strengthen governance and establish a credible reporting procedure” and “eliminate incentive to misreport,” according to the documents. 
 
 But the warnings came too late, and Barclays continued the illegal activity. 
 
 For years, Barclays reported false rates in an effort to bolster its profit and deflect concerns about the British bank’s health. Last month, the bank agreed to pay $450 million to American and British authorities to settle claims that it had manipulated key benchmarks, including the London interbank offered rate, or Libor. 
 
 Libor and other such rates affect the cost of borrowing for consumer and companies, providing a benchmark for trillions of dollars in mortgages and other financial products. The case against Barclays is the first action to stem from a broader multiyear investigation into how big banks set the rates. Authorities around the world are pursuing investigations against more than 10 big banks, including UBS, JPMorgan and Citigroup. 
 
 Since the Barclays settlement, regulators have faced scrutiny of their roles in the rate-manipulation scandal. 
 
 Lawmakers in London and Washington have questioned whether government officials turned a blind eye to years of misconduct at Barclays. The bank has disclosed that it informed regulators, including the Bank of England and the Federal Reserve Bank of New York, that it had reported artificially low rates, along with the rest of the Wall Street. 
 
 This week, the oversight panel of the House Financial Services Committee sent a letter to the New York Fed seeking transcripts from several phone calls involving regulators and Barclays’ executives. The New York Fed plans to release the transcripts on Friday. 
 
 Mr. Geithner is not mentioned in the transcripts, a person briefed on the matter said who did not want to be identified because the investigation was continuing. But it is unclear if other documents will detail whether he had deeper knowledge of the issues with Libor, and what further actions — if any — Mr. Geithner took. According to the person briefed on the matter, New York Fed officials told regulators in Washington about the problems with Libor. 
 
 The New York Fed, which oversees the holding company at some of the nation’s biggest banks, first got wind of brewing problems with Libor in the summer of 2007. At the time, Barclays executives started briefing the regulators in the United States and Britain about their interest rate submissions. 
 
 In April 2008, a Barclays employee acknowledged to the Financial Services Authority of Britain that the bank was lowering its Libor submissions. “So, to the extent that, um, the Libors have been understated, are we guilty of being part of the pack? You could say we are,” the Barclays manager said, according to regulatory documents. Barclays made similar comments to the New York Fed, the documents say. 
 
 The bank never explicitly told regulators that it was reporting false interest rates that amounted to manipulation, according to regulatory documents. 
 
 In Basel, Switzerland, Mr. Geithner discussed the Libor with Mervyn King, the governor of the Bank of England, Britain’s central bank, according to the documents provided to The New York Times. Mr. Geithner then followed up with a June 2008 e-mail to Mr. King, outlining in a two-page memo his suggested changes to the way big banks set the interest rate, a copy of the memo shows. Mr. Geithner made six main recommendations for “enhancing the credibility of Libor.” 
 
 “We would welcome a chance to discuss these and would be grateful if you would give us some sense of what changes are possible,” Mr. Geithner wrote. 
 
 Mr. King responded “favorably” the person briefed on the matter said. The person added that the respective regulators continued discussions. 
 
 Documents released by the Bank of England on Friday show that Mr. King and Paul Tucker, the central bank’s deputy governor, passed on Mr. Geithner’s recommendations to the British Bankers’ Association, the trade body that oversees the Libor rate. 
 
 Mr. Tucker also talked to William C. Dudley, the current president of the Federal Reserve Bank of New York, who was the executive vice president of the central bank’s markets group at the time of the discussion. 
 
 In a separate note, Angela Knight, the chief executive of the British Bankers’ Association, told Mr. Tucker that the suggestions from U.S. authorities were being included in a review of Libor. The trade body published its findings at the end of 2008, but is now conducting a further review into how the rate is set. 
 
 The memo from Mr. Geithner, however, raises new questions about why the Bank of England failed to halt the actions. At a hearing this week, British politicians hammered Mr. Tucker, the senior Bank of England official who is now a front-runner to become the next head of the bank, for failing to thwart the misconduct. ||||| You might have missed the latest bank scandal, the one involving Barclays Plc (BARC), in the hubbub of last week’s U.S. health-care ruling and euro salvage plan. 
 
 If so, allow us to fill you in: On June 27, Barclays, the U.K.’s second-largest bank by assets, admitted it deliberately reported artificial borrowing costs from 2005 to 2009. The false reports were used to set a benchmark rate, the London interbank offered rate, or Libor, which affects the value of trillions of dollars of derivatives contracts, mortgages and consumer loans. The bank agreed to pay a hefty $455 million to settle charges with U.S. and U.K. regulators, and on Monday its chairman resigned. 
 
 Earlier today, Robert Diamond resigned as chief executive officer. Marcus Agius, who yesterday said he would resign as chairman, reversed his decision after Diamond quit and will stay on to lead the search for a new CEO. In an apology to employees before he stepped down, Diamond wrote that some of the misconduct occurred on his watch, when he was head of Barclays Capital, the investment-banking unit. Diamond was already in the doghouse with investors. In April, 27 percent of shareholders, upset that Barclays had missed profit targets, voted down his $19.5 million pay package. 
 
 Heads should roll at other banks, too. Regulators and criminal prosecutors, including the U.S. Justice Department, are investigating at least a dozen other firms to determine whether they colluded to rig the rate. Among them: Citigroup Inc., Deutsche Bank AG, HSBC Holdings Plc and UBS AG. 
 
 Bank Bashing 
 
 We don’t countenance bank bashing. Nor have we ever called on regulators to bust up big banks. But it’s difficult to defend an industry that defrauds the market with fake interest-rate figures, thereby stealing from other banks and customers. 
 
 Sadly, the Libor case reveals something rotten in today’s banking culture. We hope the investigations expose the bad actors, lead to jail terms for those who knowingly manipulated the market, and force out the senior managers and board directors who participated in, or overlooked, such conduct. 
 
 Why so exercised? In the Barclays settlement documents, regulators released smoking-gun e-mails that reveal the extent of the dirty dealing between bank traders (looking to protect profits and bonuses) and senior officials in bank treasury units (hoping to convince markets that their banks weren’t in financial difficulty). The two aren’t supposed to collude, but it’s obvious that the Chinese walls between them come with ladders. 
 
 Libor and its euro counterpart, the Euribor, are benchmark rates determined by bank estimates of how much it would cost them to borrow from one another, in different timeframes and currencies. The banks submit sheets of numbers every weekday morning, London time. An adjusted average of the rates determines the size of payments on mortgages and corporate loans worldwide. The rates also serve as an indicator of the health of the banking system. Because some submissions aren’t based on real trades, the potential exists for manipulation. 
 
 A Barclays banker responsible for reporting borrowing rates was told to make the bank look healthier by not revealing that borrowing costs had risen. An e-mail he wrote to a supervisor confirms that he complied: “I will reluctantly, gradually and artificially get my libors in line with the rest of the contributors as requested,” he wrote. “I will be contributing rates which are nowhere near the clearing rates for unsecured cash and therefore will not be posting honest prices,” he continued, referring to rates in the overnight money market. 
 
 Derivatives Contracts 
 
 At times, Barclays traders sought to affect rates on dates when interest-rate derivatives contracts settled, thus profiting more from trades, according to documents made public by the U.S. Commodity Futures Trading Commission, one of the agencies conducting the Libor probes. Here’s an e-mail about the three- month rate from a senior Barclays trader in New York to the London banker who submitted the rates: “Hi Guys, We got a big position in 3m libor for the next 3 days. Can we please keep the lib or fixing at 5.39 for the next few days. It would really help. We do not want it to fix any higher than that. Tks a lot.” 
 
 Bankers submitting rates responded to such requests as if they were routine: “For you, anything,” and “done ... for you big boy,” according to the e-mails. Not that the efforts went unappreciated: “Dude. I owe you big time!” one trader wrote to a Libor submitter. “Come over one day after work and I’m opening a bottle of Bollinger.” 
 
 Barclays traders also coordinated with counterparts from other banks. In an instant message, one Barclays trader wrote to a trader at another bank: “If you know how to keep a secret I’ll bring you in on it, we’re going to push the cash downwards. ... I know my treasury’s firepower ... please keep it to yourself otherwise it won’t work.” 
 
 The Libor system, overseen by the British Bankers Association, operates much the way it did in the 1980s. Even after the news media uncovered evidence of manipulation in 2008, the bank lobby did little to reduce conflicts or improve the veracity of its numbers. The best solution, as Bloomberg View has advocated, is to end Libor and create a benchmark using data from actual loans, rather than relying on banks to tell the truth about their borrowing costs. 
 
 The real tragedy of the scandal is the apparent lack of ethics or self-restraint among the people involved. Following billions of dollars of trading losses at JPMorgan Chase & Co.’s out-of-control London unit, the latest installment of big-bank follies offers yet more proof that the industry shouldn’t be trusted to regulate itself. 
 
 Read more opinion online from Bloomberg View. Subscribe to receive a daily e-mail highlighting new View columns, editorials and op-ed articles. 
 
 Today’s highlights: the editors on repealing Jackson-Vanik; Noah Feldman explains why liberals should thank John Roberts; Jeffrey Goldberg on Eric Schmidt’s techno-optimism; William Pesek on shareholder activism in Japan. 
 
 To contact the Bloomberg View editorial board: view@bloomberg.net.
– The Federal Reserve Bank of New York knew something fishy was going on with the Libor rate as far back as August 2007, it has revealed. "We received occasional anecdotal reports from Barclays of problems with Libor," a spokesman said in a statement. The following spring, before any media reports on the matter had broken, it "made further inquiries of Barclays" about its Libor submissions, and even submitted ideas to reform the system to the British government, Reuters reports. The Fed is likely to face criticism that it didn't do more. "Obviously they considered this to be within their orbit," says one Yale scholar. Barclays today released documents showing it contacted the Fed about Libor a dozen times. "This chronology shows clearly that our people repeatedly raised with regulators concerns," it said. Barclays remains under intense political pressure. In a bid to ease it, ex-CEO Robert Diamond today announced that he would voluntarily forfeit about $31 million in bonuses, the Wall Street Journal reports.