Stop the rot with Libor probe
FOrgET any dangers posed to the City by Brexit. Of far more damage to the capital’s future as a great financial centre are the latest revelations surrounding the Libor rigging scandal, which implicate the Bank of England as well as former government ministers.
Evidence shown on BBC’s Panorama programme this week is devastating. It suggests that top government figures actively pushed the Bank’s regulators to persuade those responsible for setting Libor rates to keep them low during the financial crash.
What’s so damning about these recordings is that they contradict the evidence given by the Old Lady’s former deputy governor, Sir Paul Tucker, and Bob Diamond, then head of Barclays, who told the Treasury Select Committee in 2012 that they were unaware of Libor being rigged. They also claimed that no pressure had been applied by the Bank to lower rates.
What we have since learnt, however, is that Libor rates were actively manipulated by rogue traders to boost their bonuses – and 19 people have been charged. One trader, Tom Hayes, is serving 11 years.
More pertinently, the fact that traders have been found guilty of doing so is in itself a revelation since it has always been loosely accepted that traders game prices. For many, it’s been accepted that’s what market makers do, and has not been considered criminal. These prosecutions show that gaming is now considered a crime.
As is so often the case, it depends on who is doing the gaming. If these tape recordings – between two Barclays staff – are authentic, they demonstrate that regulators, at the behest of government, were involved in ordering traders to push down rates at the peak of the crisis in October 2008. You can see why. They were desperate to get money flowing into the system.
It’s an extraordinary claim, one that is sending shivers through the City and that takes some doing. Privately some of the most senior bankers and financiers are deeply worried by these claims, ones which they fear may even lead to multi-million pound class actions being taken against those who were responsible.
The reason they are so shocked is that setting Libor – the average rate banks pay to borrow from their rivals and the rate at which mortgages and loans are priced on – goes to the heart of the financial system.
Setting the benchmark is the Holy grail because it’s the price that banks are willing to lend to each other. But if the price can be manipulated by governments, what price trust? No wonder, then, that one banker describes the Libor scandal as the worst he has seen in more than 40 years of banking.
Another former exchange chairman says if the allegations are true, the banking establishment, from the Bank down, is deeply rotten. And if that is the case, only wholesale ‘slaughter’ can restore confidence.
As we know, the fish rots from the head down. To stop that rot, there must be an independent Libor inquiry which investigates everyone involved in rate setting during those vital months surrounding the crash. First stop would be another Treasury Select Committee. Step forward Andrew Tyrie. This is made for you.
Should Staley stay or go?
BArCLAYS has moved swiftly to stop the rot surrounding chief executive Jes Staley over his attempt to hunt down a whistleblower. The former JP Morgan banker has been humiliated and censured. His reputation as one of Wall Street’s golden boys has been trashed. By taking such a public stand against Staley, the bank has also made it plain that breaking the rules over seeking to identify a whistleblower is wrong.
That’s a good move. But is it enough to protect Staley? Shareholders think so. The shares have barely budged since he was found to be hunting the whistleblower, who had sent letters to the board making allegations to do with the ‘health’ of one of his lieutenants, a fellow JP banker.
It’s clear Staley was furious about the smears, and the affair has the ring of a personal crusade to protect a friend rather than directly flouting the rules. If you read Staley’s apology to staff, he does not refer to the whistleblower as a whistleblower, which is odd. However, his behaviour betrays arrogance and a lack of judgement. Not a good look for a Barclays boss. The odds are shortening on how long he will stay.