Federal Reserve Chairman Ben S. Bernanke sparked a minor stock market selloff at the beginning of Tuesday's session when he referred to the Libor system “structurally flawed.” Libor, which is responsible for setting interest rates on numerous consumer loans was at the center of a rate-fixing scandal that has come to light in recent weeks. British bank Barclays is the first bank penalized in the matter, agreeing to some $450 million in fines last week, but won't be the last as regulators are probing the involvement of several of the world's largest financial firms.
Bernanke's comments about Libor were made before the Senate Banking Committee, which is just beginning its examination of the Libor fixing mess. When asked if he felt the Libor system is fundamentally reliable, Bernanke noted that he does not. Following Bernanke's testimony, stock futures dipped sharply before rebounding later in the session on positive corporate earnings and data on the housing market. Bernanke was also asked if US banks such as Citigroup and JP Morgan Chase had engaged in rate-fixing like Barclays, responding simply that that investigation is ongoing. Both banks have revealed in recent days that they have been informed that they are under investigation.