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U.S. Federal Reserve Chairman Ben Bernanke prepares to testify before the Senate Banking, Housing and Urban Affairs Committee hearing on Capitol Hill in Washington, July 17, 2012.YURI GRIPAS/Reuters

Federal Reserve chairman Ben Bernanke said on Tuesday that the process for setting the Libor benchmark international lending rate is "structurally flawed" but said there was little the central bank could do to reform the system that has rattled investor confidence in financial markets.

The reliability of the London Interbank Offered Rate, the interest rate that underpins transactions worth trillions of dollars, is under question with the revelations that bankers sought to move rates to profit on trades and to hide its borrowing costs during the 2007-09 financial crisis.

"I would like to see additional reforms to the Libor process, assuming that Libor will continue to be a benchmark for financial contracts," Mr. Bernanke said at a Senate Banking hearing held to discuss the state of the economy.

Libor is set by a panel of banks, which submit estimates of how much they believe they have to pay to borrow from each other. Barclays PLC is the only bank so far to settle with U.S. and U.K. regulators over allegations that it manipulated the key interest rate. Dozens of other big banks are currently under investigation.

Mr. Bernanke said the Fed had little power to change the way the benchmark rate is set. "We are and need to continue advocating for reforms to the Libor process. It is constructed by private organization in the U.K., and so our direct ability to influence that is limited," he told lawmakers.

Documents released last week by the New York Fed showed that U.S. and British regulators were aware of the weaknesses in how Libor was set.

Treasury Secretary Timothy Geithner, then the head of the New York Fed, went as far as to e-mail Bank of England Governor Mervyn King in 2008 with recommendations on how to boost the credibility of Libor.

There was no documentation showing that the Fed followed up on its concerns. At the time, Mr. Geithner and the Bush administration had their hands full with a financial crisis that was spiralling out of control.

Mr. Bernanke told lawmakers that the traders and banks involved in the Libor manipulation scandal have had the effect of undermining public confidence in the financial system.

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