By Andy Verity BBC economics correspondent
The Bank of England attended a meeting in which senior executives of major banks discussed inaccurate Libor rates, at the start of the credit crunch, according to an email cited in court.
The BofE warned the bankers not to discuss the meeting in public, according to the email.
The email suggests the executives acknowledged Libor was inaccurately low and discussed raising it.
Banks have been fined billions of pounds for manipulating Libor.
The London Inter Bank Offered Rate – or Libor – is supposed to track the interest rates banks expect to pay to borrow funds from each other.
Until recently, 16 banks publicly stated every day what interest rate they thought they could borrow at – and an average was taken – which in turn determined the cost of millions of mortgages and commercial loans.
But it could be manipulated. Traders who had bet large sums on which way Libor would go could ask a favour of the staff stating each bank’s rates, tweaking the average up or down by a few hundredths of 1%.
And during the credit crunch another, more serious form of manipulation took place, called “low-balling” – where banks under-stated by much larger sums what they were really paying to borrow money – to avoid looking like they were in trouble.
The main banks say that senior executives were unaware of any Libor manipulation.
In 2012 the Bank of England told MPs it did not know about allegations of low-balling until that year.
At a preliminary hearing in litigation against Lloyds, lawyers for the claimant, Wingate Associates, a customer of the bank, referred to an internal Lloyds email which may shed new light on the nature of the discussions between the Bank of England and commercial banks.
In the email, dated 15 August 2007, a Lloyds executive tells a senior colleague about a meeting he attended the previous day with the Bank of England’s Paul Tucker and senior bank executives from Barclays, RBS, HSBC and HBOS.
At the meeting, the email says, bank executives agreed the Libor rates being submitted “do not reflect where we can borrow in decent size”. It adds that they agreed “there was a case for us fixing Libor considerably higher.”
Lawyers for Wingate said it was their case that the day following, Libor went up to 6.75%, precisely as indicated would be a good idea in the report on that meeting.
The proceedings continue.