The Serious Fraud Office (SFO) has launched an investigation into money auctions held by the Bank of England (BoE) at the start of the 2007 financial crisis. The matter has been referred to the SFO following an independent report commissioned by the BoE last year. The report was carried out by Lord Grabiner QC, who looked into whether any Bank official was aware of, or participated in, the rigging of liquidity auctions.
A liquidity auction is where commercial banks bid for ready to access cash, and those banks put up assets as collateral. During the crisis, the BoE set up auctions where a wider range of assets could be used as collateral, this then led to the credit agencies not being able to correctly assess how risky the asset was due to its nature. The SFO’s investigation is likely to look into whether the commercial banks exaggerated these assets in order to make themselves look stronger, which would make them more likely to be successful at an auction. The BoE is likely to be very transparent during the investigation in order to reassure the public, at a time where there is very little trust in the banking sector.