[ by Howard Haykin ] Conditions are ripe for British and American banking officials to escalate their differences - i.e., recollections of discussions - into a contentious fight. Bank of England Governor Mervyn King refuted statements by U.S. Treasurer Tim Geithner, who had said that, when he ran the Federal Reserve Bank of New York in 2008, he (Mr. Geithner) warned British officials about Libor rate-rigging and offered recommendations to address deficiencies in the way the rate was compiled. Mr. King stated that American authorities did not warn British officials about the rate-rigging scandal at the height of the financial crisis in 2008, and backed up that claim with documents released by the Bank of England ("BOE") on Friday.  E-mails from the British central bank shed new light on conversations between Mervyn King and Timothy Geithner. Shifting of Pressure. Both American and British officials have come under mounting scrutiny from politicians about what they did or didn't do, and why, in response to possible illegal activity at some of the world's largest banks.  For example, Paul Tucker, BOE deputy governor, talked to Barclays and a number of other global banks during 2008 about potential problems with how the London interbank offered rate, or Libor, was set, according to documents released on Friday.  Despite such conversations, some traders and senior executives at Barclays continued to alter the rate until 2009. Today's newly released emails outline the BoE's discussions with both the NY Fed and the British Bankers' Association, the London-based trade body that oversees Libor.  The conversations center on concerns about how the rate was set.  The documents also called on the British Bankers' Association to conduct a review, including input from international government agencies, to ensure the credibility of the rate. This discussion was followed by a flurry of e-mails a month later in which Mr. Geithner, recommended changes to the rate, which is used as a benchmark for more than $360 trillion financial products worldwide.  The suggestions included ''strengthen governance and establish a credible reporting procedure'' and ''eliminate incentive to misreport,'' according to documents released by the New York Fed.  Mr. King told Mr. Geithner that he supported the suggestions. Yet, the NY Fed did not make any allegations of wrongful behavior connected to Libor, according to documents released on Friday. Mr. King told a British parliamentary committee on Tuesday that Mr. Geithner's suggestions did not represent a warning about the potential manipulation of Libor.

''At no stage did he or anyone else at the New York Fed raise any concerns with the Bank that they had seen any wrongdoing.  'There was no suggestion of fraudulent behavior.'' -- Mervyn King.

This position was echoed by other senior British officials, who said they didn't believe that the NY Fed had raised concerns about possible illegal activity connected to Libor. Barclays acknowledged to the New York Fed in April 2008 that ... it was reporting artificially low rates to mask its relatively high borrowing costs. The British bank also raised questions about whether other institutions were providing correct submissions to Libor.  [C-I Note: If this last statement is correct, and truly reflected Barclays lack of knowledge about the activities of other banks, it refutes theories about banks collusion - though it doesn't fully dispel them.] The concerns about the integrity of the rate were passed to Mr. Geithner and other top American officials, according to documents released last week.  American authorities began an investigation into potential manipulation of Libor at some of the world's largest banks in 2008.  The Financial Services Authority ("FSA"), the British regulator, opened its own inquiry in early 2010.

[C-I Note: This looks like it has the potential to escalate into a contentious fight between Mr. King and Mr. Geithner.  Or, it may peter out because governor King's comments don't necessarily refute what Geithner said, but simply offers a different interpretation.  One must remember, that the Libor scandal is primarily a British matter, and all top Bank of England officials are currently fighting for their public service lives - including Guv'nor King and Deputy Guv'nor Tucker.  That makes them dangerous and capable of doing just about anything.  "Desperate times demand desperate actions."]

For further details, go to:  [Dealbook, 7/20/12].