The Serious Fraud Office is carrying out an unprecedented criminal investigation into the Bank of England over money-market auctions during the credit crisis, which pumped funds into financial markets.
On Wednesday night the SFO announced that it is “investigating material referred to it by the Bank of England concerning liquidity auctions during the financial crisis in 2007 and 2008”.
It still remains unclear as to whether the SFO investigation will focus on officials inside the Bank of England or outside traders.
During the height of the crisis the BoE carried out a series of “auctions” gave banks the opportunity to borrow funds in exchange for collateral.
The sooner the findings the better
Andrew Tyrie, chairman of the Treasury select committee, said:
“The Bank referred this to the Serious Fraud Office when Lord Grabiner’s initial findings were made clear to them. This was the right thing to do. I was informed about the referral on November 21, 2014.”
“We must now await the outcome of the SFO’s work. The sooner their findings are published the better.”
Lord Grabiner QC to conduct an independent inquiry into liquidity auctions
In a statement, the Bank said:
“Following the confirmation by the Serious Fraud Office (SFO) that it is investigating material referred to it by the Bank of England, the Bank can now confirm that it commissioned Lord Grabiner QC to conduct an independent inquiry into liquidity auctions during the financial crisis in 2007 and 2008.”
“Following the conclusion of that initial inquiry, the BoE referred the matter to the SFO on November 20, 2014.”
Era of “constructive ambiguity” is over
“Given the SFO investigation is ongoing, it is not appropriate for the Bank to provide any additional comment on the matter at this time.”
Minouche Shafik, the Bank’s deputy governor for markets and banking, said that the era of “constructive ambiguity” is over in the contacts between Bank officials and City traders – known as “fireside chats”.
News of this investigation will likely increase concerns that the BoE’s relationship with the City was not always completely honest or right.