[ by Howard Haykin ] When Timothy 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 NYTimes.  Now as the U.S. Treasury secretary, he's 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.  Mr. Geithner then reached out to top British authorities to discuss issues with the Libor interest rate index that is set in London. He also e-mailed his counterparts, outlining several reforms to the system and suggesting that British authorities "strengthen governance and establish a credible reporting procedure," and "eliminate incentive to misreport," according to the documents.  But the recommendations 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.  This led to last month's settlement, in which the bank agreed to pay $450 million to American (CFTC) and British (FSA) authorities to settle claims it had manipulated key benchmarks, including Libor - the London interbank offered rate. Libor and other such rates provide benchmarks for trillions of dollars in mortgages and other financial products, thus affecting the cost of borrowing for both consumers and companies.  This recent case involving only Barclays is the first such action to stem from a broader multi-year 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. Harsh Spotlight on Regulators. The Barclays settlement has prompted lawmakers to focus on the regulators and to scrutinize their roles in the rate-manipulation scandal.  In both London and Washington, lawmakers have looked into the possibility that government officials may have turned a blind eye for years to the misconduct at Barclays, and perhaps elsewhere.  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. The oversight panel of the House Financial Services Committee requested in writing that the New York Fed provide it with transcripts from several phone calls involving regulators and Barclays' executives. It's expected that the New York Fed will release the transcripts as early as Friday.  Mr. Geithner reportedly is not mentioned in the transcripts, and it's 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 a 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 companies at some of the nation's biggest banks, first got wind of possible problems with Libor during the summer of 2007.  At the time, Barclays executives started off briefing U.S. and U.K. regulators about their interest rate submissions.  In April 2008, a Barclays employee acknowledged to the FSA, U.K's securities regulator, 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.

Yet, the bank never explicitly told regulators that it was reporting false interest rates that amounted to manipulation, according to regulatory documents. According to documents provided to the NYTimes, Mr. Geithner met with Mervyn King in Basel, Switzerland to discuss issues pertaining to Libor.  King is governor of the Bank of England, Britain's central bank.  Mr. Geithner followed up in June 2008 with an email to Mr. King, in which he outlined in a 2-page memo suggested changes to the way big banks set the interest rate.  All told, Geithner offered 6 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 reportedly responded "favorably" to the recommendations, and respective regulators continued discussions. U.K. Authorities Make Decision. The documents released on Friday by the Bank of England 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 Dudley, the current president of the Federal Reserve Bank of New York who, at the time, was an EVP of the central bank's markets group. In a separate note, Angela Knight, the chief executive of the British Bankers' Association, told Mr. Tucker that 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 senior Bank of England official Tucker for failing to thwart the misconduct.  It's interesting to note that Mr. Tucker, up until now, had been considered a front-runner to succeed Mervyn King as head of the bank.  However, because Tucker has become a prime target in the investigation, the prospects of him becoming head of the BoE have been seriously impaired. For further details, go to:  [Dealbook, 7/12/12].