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Jerry del Missier, who quit as Barclays chief operating officer, is appearing before the Treasury select committee.
Asked if a 2008 phone call from his boss was an instruction to cut the rates Mr del Missier said "yes it was".
Last month, Barclays was fined £290m after admitting trying to manipulate Libor from 2005 to 2009.
Barclays has said that Mr del Missier told his traders to cut the Libor interest rate submissions following a misunderstanding over a note sent from Mr Diamond.
Mr del Missier told MPs he acted on the basis of a phone call from Mr Diamond the day before.
Emailed to then-chief executive John Varley on 30/10/2008. Copied to Jerry del Missier.
Date: 29 October 2008
Further to our last call, Mr Tucker reiterated that he had received calls from a number of senior figures within Whitehall to question why Barclays was always toward the top end of the Libor pricing. His response was "you have to pay what you have to pay". I asked if he could relay the reality, that not all banks were providing quotes at the levels that represented real transactions, his response "oh, that would be worse".
I explained again our market rate driven policy and that it had recently meant that we appeared in the top quartile and on occasion the top decile of the pricing. Equally I noted that we continued to see others in the market posting rates at levels that were not representative of where they would actually undertake business. This latter point has on occasion pushed us higher than would otherwise appear to be the case. In fact, we are not having to "pay up" for money at all.
Mr Tucker stated the levels of calls he was receiving from Whitehall were "senior" and that while he was certain we did not need advice, that it did not always need to be the case that we appeared as high as we have recently.
"I took the action on the basis of the phone call that I had had with Mr Diamond," Mr del Missier said.
"He [Bob Diamond] said that he had a conversation with Mr Tucker of the Bank of England, that the Bank of England was getting pressure from Whitehall around Barclays, the health of Barclays as a result of Libor rates and that we should get our Libor rates down and that we should not be outliers.
"At the time it did not seem an inappropriate action given that this was coming from the Bank of England," Mr del Missier added.
Asked, was it an instruction from Mr Diamond to him to lower Libor, del Missier replied "yes it was."
"I passed the instruction on to the head of the money market desk. I relayed the content of the conversation I had with Mr Diamond and fully expected the Bank of England views would be fully incorporated in the Libor submission," he said.
MPs asked Mr del Missier how he managed to misunderstand a crucial email from Mr Diamond sent the day after the phone call.
The email summarised a call between Mr Diamond and Paul Tucker, deputy governor of the Bank of England.
It appeared to suggest that the Bank might turn a blind eye if Barclays reduced its high Libor submissions, to avoid appearing under financial stress at the height of the international banking crisis.
"Mr Tucker stated... it did not always need to be the case that we appeared as high as we have recently," the notes, written by Mr Diamond said.
Mr del Missier told the committee he believed the Bank of England alone instructed Barclays to lower Libor submissions.
Mr Diamond had previously told the committee he did not believe the Bank of England instructed the bank to lower the inter-bank lending rate and did not believe he instructed Mr del Missier to do so.
Asked how he could have misinterpreted Mr Diamond's conversation, Mr del Missier said: "I can only tell you what I clearly recall from the conversation."
Mr del Missier said, however, that given the global financial crisis in 2008, the controversial rate-rigging did "not seem a significant event given what was going on".
MPs asked Mr del Missier several times if the manipulation of rates was illegal.
However, Mr del Missier said that it was not a "yes or no" matter.
The Libor rates are used to price trillions of dollars worth of deals between banks and other financial companies, as well as being used as the benchmark for pricing loans to businesses, as well as some mortgages.
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