Paul Tucker, the deputy governor of the Bank of England, sought urgent clarifications over the sources of Barclays (LSE: BARC.L - news) ' funding during the 2008 banking crisis as the Government sought ways to reduce the interbank borrowing rate Libor, I have learned.
I've obtained the first access to email correspondence from October 2008 between Bob Diamond, who was head of Barclays Capital, Paul Tucker, then the head of markets at the Bank of England, and Jeremy Heywood, a senior Downing Street official.
In an email exchange between Mr Tucker and Mr Diamond dated October 26, 2008, the Bank of England official said he was "struck that your (government guaranteed) bond was issued at around 140 over gilts… That’s a lot".
Mr Diamond replied that he could discuss the issue either that day or the following day. It is unclear whether a follow-up discussion took place.
The exchange preceded by three days a note released last week from Mr Diamond to John Varley, then Barclays' chief executive, and Jerry del Missier, another senior official at the bank, which led to Barclays falsifying its Libor submissions.
In it, Mr Diamond said Mr Tucker had suggested that Barclays' Libor submissions did not always need to be so high. It doesn't seem clear from the correspondence that has been leaked to me that Mr Tucker made such a direct comment to Mr Diamond.
Mr Tucker also emailed Mr Varley and Mr Diamond on October 22 asking to "talk to one or other of you about Libor…it's a slightly sensitive point".
The frequency of the contact between the Bank of England and Barclays underlines the concern within the central bank about Barclays' ability to viably fund its operations at a time when the bank-funding markets had frozen for many lenders.
Separate exchanges between Mr Tucker and Mr Heywood from October 22, 2008 reflect similar concerns.
An email from Mr Heywood asked Mr Tucker if he was hearing the rumour that "sterling 3-(month) Libor is high because Barclays are bidding it. They are bidding 2 basis points ABOVE Libor. This has been going on for three weeks... A lot of speculation about what they are up to".
Mr Tucker replied: "I know. But I don't think that can be all of it. Cos I don't think they’d be an influence on euro Libor, which has also been sticky. But we are trying to monitor what’s going on."
Mr Heywood responded: "Thanks. Obviously we are v concerned that US rates are tumbling but we remain stuck."
Mr Tucker’s response said that he was "concerned too, for both parts of our mission".
On October 24, Mr Tucker emailed Barclays executives including Mr Diamond to seek a meeting "to discuss the structure and sources of your money market funding before the turmoil began... This is because I want to get a better handle on just how much ground we've got to recover".
John Mann, one of the TSC members, said: "This correspondence should have been released ahead of Mr Diamond's appearance. The Bank of England would have understood the urgency of the [FOI] request and this clearly displays their contempt of the Parliamentary process".
In the unlikely event that you've forgotten, Barclays was last month fined £290m for attempting to manipulate the Libor rate, partly to provide the impression that it could borrow more cheaply than was actually the case.
This latest correspondence appears to reinforce the Bank of England's stance that Mr Tucker was not guilty of any wrongdoing, and a further exchange shows Mr Heywood advocating an acceleration in the rate of Libor reduction through a "change in the guarantee fee (to bring it in line with the Dutch scheme) is called for."
The Bank of England declined to comment.