Treasury Secretary Timothy Geithner should have probed banks more for allegedly fixing interest rates when he was head of the Federal Reserve Bank of New York back in 2008, said Sheila Bair, former head of the Federal Deposit Insurance Corporation.
Global financial institutions have been accused of manipulating the London Interbank Offered Rate (Libor), an interest rates used by banks when lending to one another.
Banks worldwide are being probed from keeping the rate artificially low to profit on trades and water down borrowing costs during the 2007-2009 financial crisis.
Editor's Note: You Owe It to Yourself to Know What Obama and Bernanke Are Hiding From Americans
Barclays in the United Kingdom has paid a $453 million penalty, though documents may suggest the New York Fed, who did probe the issue, should have dug deeper with more investigation and less advice on how to fix the problem.
"Looking at those emails, it looks like they had pretty explicit notification of some very bad behavior, and I don't understand why they didn't investigate," Bair told CNBC.
"I think they deserve some credit for trying to suggest some reforms. Even those reforms did not attack the core problem, which was that it wasn't a transaction-based survey. It was a judgment survey. But I don't understand they didn't investigate given what they were being told. I don't understand it, and they did have the authority to do that."
Central bankers and regulators will meet in September to discuss ways to reform methods banks use to set interest rates when lending to one another.
Some monetary policy officials have suggested scrapping Libor and rolling out a new mechanism altogether.
"There are different alternatives if Libor cannot be fixed," Bank of Canada Governor Mark Carney told a news conference recently, according to Reuters.
"If it's structurally flawed and can't be fixed — which is a possibility — there may need to be different types of approaches, and we need to think that through."
Editor's Note: You Owe It to Yourself to Know What Obama and Bernanke Are Hiding From Americans
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