Heywood emails reveal a rising panic on key rates

CABINET secretary Sir Jeremy Heywood was in frequent contact with the Bank of England over the Libor rate during the height of the financial crisis, according to emails revealed yesterday.

Correspondence from 2008 between Sir Jeremy, then principal private secretary to chancellor Gordon Brown; Bank of England deputy governor Paul Tucker, then the central bank’s director for markets; and former Barclays chief executive Bob Diamond shows the extent to which the interbank lending rate was a topic of significant concern for the government.

In a series of emails sent to Paul Tucker in October 2008, Sir Jeremy questioned why Barclays continued to bid above the asking price even after Libor had been set for the day, keeping the rate high and causing “a lot of speculation in the market over what they are up to”.

Tucker replied, “I don’t think that can be all of it.”

Earlier the same day, Tucker had emailed Diamond asking to speak about Libor, calling it “a slightly sensitive point.”

Three days later, Tucker titled an email to Diamond: “Struck that your [government guaranteed] bond was issued at around 140 over gilts,” merely adding, “That’s a lot.” Diamond replied offering to meet Tucker.

The correspondence was revealed after Labour MP John Mann filed a Freedom of Information request, asking for a response in advance of Diamond’s appearance before the Treasury select committee last week.

But the emails were not published until yesterday, prompting Mann to criticise the Bank of England for their failure to release the “critical” information with a sense of “urgency” – “a clear display [of the Bank’s] contempt of the parliamentary process.”
Mann, who did not receive the information until yesterday, said the information would have been “critical” in Diamond’s interview last week the Bank of England has warned the Bank of England it could be seen to be in contempt of Parliament.

TUCKER TO DIAMOND, 22 Oct 2008, 10:56am
“Could I talk to you about Libor? It’s a slightly sensitive point.”

SIR JEREMY TO TUCKER, 22 Oct 2008, 2:47pm
“Sterling Libor is high because Barclays are bidding it. They are bidding ABOVE Libor. A lot of speculation in the market over what they are up to.”

TUCKER TO DIAMOND, 25 Oct 2008, 11:32am
“Struck that your [government guaranteed] bond was issued at around 140 over gilts. That’s a lot.”

WHO ELSE DID TUCKER TALK TO IN WHITEHALL?

Tom Scholar
Gordon Brown’s former chief of staff has been the second permanent secretary to the Treasury since January 2009. He was Paul Tucker’s main Whitehall contact in 2008, when he was managing director of international and finance at the Treasury.

Nicholas Macpherson
Permanent secretary to the treasury from 2005, Macpherson was the most senior civil servant at the department during the BoE’s concern over Barclays. Last week he said the way banks conduct their business “really have to be cleared up”.

Jon Cunliffe
Joined the civil service in 1980 and held a number of senior positions in the treasury before joining the Prime Minister’s office as head of the European and global issues secretariat, where he was a key adviser to Gordon Brown on economic affairs. He is now the UK’s permanent representative to the EU.