Committee to grill regulator, Barclays executive

Jerry del Missier, Co-Chief Executive of Barclays Capital, speaks during the Reuters Future Face of Finance Summit in New York March 2, 2011.

LONDON (Reuters) - The top national bank regulator and a former executive in the middle of an interest rate scandal at Barclays face a grilling by British MPs on Monday over what they knew about an affair that has drawn in banks, regulators and politicians on both sides of the Atlantic.

The Commons Treasury Select Committee will question Jerry del Missier two weeks after he quit as chief operating officer of Barclays, the British bank hit by an interest rate manipulation scandal that has blown up into a political storm. He was the trusted investment banking lieutenant of Bob Diamond, the Barclays chief executive who quit the same day.

Del Missier is said by Barclays to have misinterpreted a message from Diamond and told the bank's staff that the Bank of England had sanctioned them submitting lower rates to massage down the London Interbank Offered Rate, or Libor, the rate that underpins global transaction worth trillions of dollars.

Del Missier has yet to comment publicly on the matter and his evidence could shine a light on who knew what at Barclays after testimony from Diamond which some committee members have characterised as misleading, a charge Diamond has rejected.

Adair Turner, chairman of the Financial Services Authority (FSA), will follow del Missier before the committee. He will face questions on the regulator's involvement and whether it was tough enough when rate rigging occurred between 2005 and 2009.

Barclays was fined a record $450 million last month by U.S. and British authorities for manipulating the Libor interest rate. Barclays will pull out of the rate-setting panel for interbank lending in the United Arab Emirates because of its involvement in the Libor scandal in the country, industry sources told Reuters on Sunday.

Libor is compiled from estimates by big banks of how much they believe they have to pay to borrow from each other. It is used for $550 trillion of interest rate derivatives contracts and influences rates on mortgages, student loans and credit cards. An understated estimate could allow a bank to present a better picture of its financial health.

Questions have arisen over whether supervision of the benchmark rate was too lax. The Bank confirmed on Friday it had received U.S. recommendations to overhaul Libor, and had passed them on to the banking trade group responsible for the rate.

It also emerged that Barclays alerted U.S. regulators as far back as 2007 to concerns that banks were rigging benchmark interest rates, and policymakers on both sides of the Atlantic did not appear to take decisive action.

The British parliamentary committee has questioned Diamond, Barclays' Chairman Marcus Agius and Paul Tucker, deputy governor of the Bank , in its efforts to uncover what happened at Barclays.

Diamond and del Missier quit on July 3 and Agius said, during testimony to the committee last Tuesday, that the Bank Governor Mervyn King effectively forced Diamond to go because he had lost the confidence of regulators.

Turner, one of the favourites to take over from King as the Bank governor next year, is likely to be asked how involved he was in forcing Diamond out.

He could also be challenged on why the FSA didn't react more to warnings about Libor, and what was clearly a strained relationship with Barclays.

The FSA chief sent a scathing letter to Barclays in April telling the bank that its "aggressive" culture needed to improve.

MISUNDERSTANDING

Barclays is the only bank so far to giving false information as part of the process of setting Libor.

A conversation in October 2008 between Diamond and Tucker is at the centre of confusion about whether Barclays was told by the central bank it could submit lower Libor rates.

In an internal memo written after that conversation, Diamond said Tucker told him "it did not always need to be the case that we appeared as high as we have recently".

Diamond has since said he did not take that as an instruction to submit lower rates, but said del Missier mistakenly understood the memo as a green light to do so. Del Missier declined to comment, a spokesman for Barclays said.

When Tucker appeared before the committee he said the memo misrepresented the conversation. The purpose of the call was to share his concerns about Barclays' funding costs rather than discuss interest rates, Tucker said.

Turner, 56, has been head of the FSA since 2008, when he warned of a more intrusive and direct style of supervision after the painful lessons from the financial crisis.

He will be joined in front of MPs by Andrew Bailey, the FSA's head of banking supervision, and Tracey McDermott, the FSA's acting director of enforcement. They are due to appear at 3.45 p.m., after del Missier at 3 p.m .

More than a dozen banks are expected to be drawn into the Libor scandal, which is being probed by authorities in North America, Europe and Japan.

Agius and senior Barclays executives told staff the bank's problems would be "put in perspective" by fines imposed on rivals, according to a memo sent out on Friday.

Libor rates submitted by banks are compiled by Thomson Reuters, parent company of Reuters, on behalf of the British Bankers' Association.

(Additional reporting by Chris Vellacott; Editing by Giles Elgood)