Asleep at the wheel

So more revelations from the LIBOR scandal flow out.

Reports mention that “Members of the Treasury Select Committee (TSC) also claimed the Bank of England and the Financial Services Authority (FSA) had been “asleep” in letting Barclays promote Jerry del Missier to chief operating officer last month, after establishing he had instructed colleagues to fix the key inter-bank lending rate”.

The report goes on to say that the “criticisms came as Ben Bernanke, chairman of the US Federal Reserve, warned that banks’ ‘unacceptable behaviour’ was ‘undermining confidence in financial markets’ and applauded the ‘quick’ response of the Federal Bank of New York, which first uncovered evidence of rigging in back in 2008. He said: ‘Importantly, it informed all the relevant authorities in both the US and the UK.’ Sir Mervyn King, Governor of the Bank of England, denied that the Bank had been warned, saying: ‘Neither the Fed nor anyone sent us any evidence of misreporting.'”

The piece adds that “according to documents seen by committee member John Mann MP, US regulators were dismayed by the UK response to the scandal. He quoted a Federal Reserve employee, also in 2008, saying: ‘US confidence in the London market was being severely shaken… by the slow reaction time of the London authorities. They had to be continuously prodded by us.’ Turning to Bank Governor Sir Mervyn King, Mr Mann said: ‘You appear to still be in denial that it was known there was Libor rigging going on.'”

A separate piece notes that “Emails and notes of meetings between the Bank, other regulators and banking industry representatives, which were disclosed today, show there were clear indications that banks’ rate setters could have been deliberately falsifying Libor submissions at the height of the financial crisis. The emails reveal senior figures at the Bank, including deputy Governor Paul Tucker, were given a number of separate alerts in 2008 – by their own officials, the British Bankers Association (BBA) and US regulators – about the potential for manipulation”.

Other reports note that “newly published emails showed that the Bank of England urged the BBA, the body responsible for Libor, for ‘greater energy’ in overhauling the lending benchmark at the height of the financial crisis. There were widespread concerns about the rate at the time. Barclays, which admitted rigging the rate between 2005 and 2009, is just one of 16 banks being investigated by US, UK and EU regulators. Paul Tucker, now deputy governor at the BoE, said in 2008 that he did not expect the BBA to do a ‘root and branch review’ of Libor, despite concerns raised by over ‘misreporting’ of the rate by Tim Geithner, US Treasury Secretary who at the time was head of the New York Fed”.

With other banks, notably, HSBC, being drawn into the scandal, many are gunning for the regulators, in the vein hope that there will be less.  Yet despite the fact that it now looks almost certain that the Bank of England knew what was going on, but was unaware of its significance or colluded it covering it up. However, calls for the regulatory powers of the BoE to be split as happened under during the crisis are incorrect. A single all powerful regulator is needed, answerable to the public and accountable for its actions. The only thing that explains the lack of regulation is a naivety in “the market” and how it works. Something that has been corrected, admittedly at great cost.


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