The Bank of England was dragged into an interest-rate rigging scandal after an email was released suggesting it may have encouraged banks to doctor their borrowing costs during the financial crisis.
The email - an account of a conversation between the chief executive of Barclays, Bob Diamond, and the Deputy Governor of the Bank of England, Paul Tucker - appears to show that Barclays was under the impression that manipulating rates was being sanctioned at the highest level.
The email was released by Barclays ahead of a high-profile showdown today between Diamond and MPs on the Treasury Select Committee.
Diamond was to be asked what advice he received from the Bank of England on the reporting of Barclays' Libor rates.
Any suggestion that the manipulation was authorised by Tucker, the Permanent Secretary at the Treasury Sir Nicholas Macpherson, or government ministers would be highly damaging and increase pressure for a full public inquiry.
The email came at the end of a day of dramatic developments in which it emerged that Diamond could be in line for a payment of up to £30 million ($58 million) after announcing his immediate departure as head of the bank. But it was the release of the email which could prove the most significant development.
The email, dated October 30, 2008, was from Diamond, then head of Barclays Capital, to John Varley, Barclays' chief executive, and copied in to Jerry del Missier, then co-head of the investment bank.
In it he details a phone conversation with Tucker who was concerned at Barclays' high reported Libor borrowing costs. Diamond said the Deputy Governor told him 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". Diamond said he told him that the Treasury should be told it was because other banks were under-reporting their own borrowing costs. He said the response was, "oh, that would be worse".
In the most damaging section of the email Diamond says he was told the calls from the Treasury were "senior", before appearing to give a strong hint that Barclays should also under-report its borrowing rates. He said Tucker told him: "It did not always need to be the case that we appeared as high as we have recently."
But in its submission to the select committee, Barclays claimed that was not what Diamond meant by the email. "Subsequent to the call, Bob Diamond relayed the contents of the conversation to Jerry del Missier," Barclays said.
"Bob Diamond did not believe he received an instruction from Paul Tucker or that he gave an instruction to Jerry del Missier. However, Jerry del Missier concluded that an instruction had been passed down from the Bank of England not to keep Libors so high and he therefore passed down a direction to that effect to the submitters."