Bob Diamond, who resigned as chief executive a day earlier, was grilled by a parliamentary committee about his conversation with Paul Tucker, deputy governor of the Bank of England, on Oct. 29, 2008.
That conversation, disclosed Tuesday by Barclays, has become the focus of questions about the false data submitted by Barclays between 2005 and 2009 which last week drew a fine of $453 million by U.S. and British agencies.
The question is crucial to the development of the market-fixing scandal because it would determine whether British authorities were encouraging banks to report lower than actual borrowing rates to ease market concerns over the banks' financial health.
Banks borrow from each other daily and report at what rate they got the money. A high rate can indicate a bank is having trouble borrowing money because it is in financial trouble.
Those reports are compiled into a benchmark interest rate — the London interbank offered rate, or LIBOR — used to price the rates charged on mortgages to business loans worldwide.
Diamond wrote a memo recording Tucker as saying about Barclays' borrowing rates "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."
The question was whether this was a veiled encouragement by Tucker for Barclays to report lower borrowing rates.
Diamond said he did not take it to be an order or even, as committee chairman Andrew Tyrie suggested, "a nod and a wink, even though it reads that way to almost anyone who looks at it."
Diamond said a subordinate, Jerry del Missier, misunderstood the memo and ordered his staff to lower their reported rates. Del Missier also resigned on Tuesday, a day after Barclays chairman Marcus Agius said he was stepping down.
Tyrie noted that LIBOR fell the day after Diamond sent the memo to del Missier. But Diamond argued that was due to positive news that had buoyed spirits in financial markets and that it had nothing to do with the borrowing rates that Barclays had submitted.
The Bank of England has said Tucker was "quite keen" to testify to the committee to give his version of the conversation.
Diamond told the committee that there was fear in 2008 that the relatively high rates Barclays was reporting could have given the impression that Barclays was in trouble. That could have scuppered a deal to raise billions in new investment from Qatar and other funds at a critical period of the global financial crisis. The British government was in those months rescuing and nationalizing banks like Royal Bank of Scotland and HBOS.
"We were desperate," Diamond told the committee. "We had 6.7 billion pounds ($10.5 billion) in equity being raised, and if rumours got into the market that we couldn't fund, maybe we couldn't complete the equity raising."
U.S. and British agencies also found Barclays guilty of deliberately submitting low rates in 2007, and that traders at Barclays had been pressuring colleagues to submit false rates to benefit their own dealings between 2005 and 2009.
"Clearly there were mistakes, clearly there was behaviour that was reprehensible," Diamond said, but contended that Barclays had moved quickly to correct the problem and spent 100 million pounds to support the investigations.
Diamond said other false reporting starting in 2005 at the behest of traders did aim to manipulate the LIBOR. Diamond said this activity was limited to 14 traders out of some 2,000 working for the bank.
Diamond appeared tense and wary as he parried often hostile questions about his salary and bonuses, from the committee.
Barclays shares closed down 0.63 per cent at 166 pence in London, and shares in other major British banks finished lower.