Rate-fixing row deepens as Tories blame Labour

The political row in Britain over the fixing of inter-bank lending rates deepened at the weekend via the publication of confidential advice from UBS to the previous Labour government on how to reduce the key Libor rate at the height of the financial crisis in 2008.

The Conservative-led coalition has tried to pin part of the blame for the rate-fixing by bank traders on the previous Labour government, questioning whether it directly or indirectly sanctioned the manipulation.

The chairman and chief executive of Barclays Bank both resigned last week after the bank agreed to pay nearly $450m for its part in rigging the Libor rate between 2005 and 2009, which is used to settle interest rates on trillions of dollars of contracts globally.

The Labour Party has said the coalition government had tried to smear the party by insinuating that the confidential advice was about the deliberate manipulation of the Libor rate. The advice, in a note titled “Reducing Libor, improving lending conditions”, was sent from Swiss-based bank UBS to the British Treasury at a time when lending between banks had all but dried up over fears they might collapse.

Instead the document, published in the Financial Times, “simply proposes legitimate policy improvements” to reduce the cost of banks lending to each other during the credit crunch, Labour said.

It called on British Chancellor George Osborne to withdraw “false allegations” that people close to Gordon Brown were at fault over the rate-fixing scandal.

“There is absolutely nothing in this note about the deliberate fixing of the Libor rate, which Barclays traders were involved in,” said Labour finance spokesman Chris Leslie.

In the document, UBS suggested the Libor rate could be reduced if the British government cut the cost of a credit guarantee scheme, which backed bank lending, to levels operating in a similar scheme in the Netherlands.