* Turner hits out at traders' "computer game" mentality
* says FSA was "too slow" in tackling PPI mis-selling
By Huw Jones
LONDON, Feb 27 (Reuters) - Regulators could not have spotted the "lowballing" of Libor interest rates during the financial crisis even if they had looked, Britain's Financial Services Authority said.
The watchdog's chairman, Adair Turner, told a parliamentary commission on banking standards on Wednesday it was much easier to see abuses in share trading by using computers.
Manipulation of the London interbank offered rate (Libor) during the 2008 crisis, for which three banks - Barclays BARC.L, Royal Bank of Scotland and UBS - have been fined so far was far harder to see, he said.
"There was no information on the trader manipulation," Turner told the commission. Libor is used to price trillions of dollars of financial products from derivatives to mortgages.
As markets went into meltdown following the collapse of Lehman Brothers in September 2008 some banks put in low submissions for rates at which they could borrow from other banks to give an impression they were sound.
The FSA's report into when and what it knew about Libor rigging will be published on Tuesday, March 5.
It comes after questions from lawmakers as to why the U.S. Commodity Futures Trading Commission began probing possible rigging of the London-based Libor before the FSA.
Neither the FSA, the CFTC - two of the regulators that have fined the three banks - or other regulators had ways to see the trader manipulation, Turner said. "We could not have got at it by intensive supervision. You just cannot have a police force big enough to spot all these problems."
While whistleblowing was one of the few ways to report illegal activity, Turner said trading room mentality was detached from the real economy as some traders see their job in front of a screen as being like playing a computer game, asking "Why shouldn't I cheat?".
FSA managing director Martin Wheatley told lawmakers he was unconvinced about the need to start rewarding information with cash as U.S. regulators can do.
Turner, whose job ends next month when the FSA is scrapped, also said the watchdog should have acted faster to deal with mis-selling of payment protection insurance (PPI).
Commission member Andrew Turnbull said the compensation process was mayhem with banks facing a torrent of claims. The FSA should "get a grip" to bring closure as a rising bill was sucking capital from banks.
"We are not where we want to be," Wheatley said.
some 10 billion pounds has been paid out, a sum that is expected to go higher. PPI sales totalled 50 billion pounds.
The FSA has been in talks with the British Bankers' Association on ideas for accelerating compensation and one or two banks and already had deadlines for claims, which they set three years ago, and have now passed. "The problem is one or two banks that have not done that," Wheatley said.
Wheatley also said he had been surprised by comments this month from Eric Daniels, a former chief executive of Lloyds Banking Group, who said its PPI sales practices put it "on the side of the angels" and likened banks to supermarkets by selling some products as loss leaders.
"I was quite aghast. They are not selling a piece of broccoli that goes off after a few days ... I find it quite extraordinary," Wheatley said.
After the FSA is scrapped, Wheatley will head a new standalone Financial Conduct Authority, with the Bank of England responsible for ensuring banks hold enough capital and cash.