After the Barclays Libor scandal, how long must we wait for a public inquiry?

By Ben Phillips | Published: June 29, 2012

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This week’s news that Barclays Bank spent several years trying to manipulate the London Interbank Offered Rate, or Libor – the average borrowing rate for banks, calculated each day and used to price innumerable financial services worldwide – has been greeted with widespread disgust.

Yesterday, George Osborne described it as “a shocking indictment of culture at banks like Barclays in run up to the financial crisis“, while Ed Miliband called for criminal prosecutions. Barclays’ embattled CEO, Bob Diamond, has faced fresh calls for his resignation.

Today bought fresh news of Barclays’ malpractice, with the FSA instructing them and three other high street banks (Lloyds, RBS and HSBC) to pay redress to a large number of small business customers that were missold interest rate swaps.

Meanwhile, the latest voice to join the chorus of outrage over the banking sector’s behaviour is none other than that of Mervyn King, Governor of the Bank of England.

Earlier today, at a press conference to mark the launch of the Bank of England’s Financial Stability Report, King refused to endorse Diamond as a fit and proper person to run a bank. ”There’s something very wrong with the UK banking industry“, he said, “and we need to put it right.”

“It is time to do something about the banking system…Many people in the banking industry are hard-working and feel badly let down by some of their colleagues and leaders. It goes to the culture and the structure of banks – the excessive compensation, the shoddy treatment of customers, the deceitful manipulation of a key interest rate, and today news of yet another mis-selling scandal.”

 

See also:

• Miliband: Time for prosecutions, proper regulation and an end to the “casino culture” 28 June 2012

• Osborne, Barclays, the Cayman Islands and tax avoidance 17 April 2012

• The warnings about Barclays’s tax-dodging greed were there in 2008 28 February 2012

• Transparency, accountability, responsibility: Miliband’s “one nation banking” principles 3 February 2012

• The government has the power to stop Hester’s bonus, they just don’t want to 27 January 2012

 

The logical conclusion to all of this is that we need a Leveson inquiry for the banking sector. Yet King denies that such a thing is necessary, as does David Cameron.

How many more revelations and scandals will it take for that position to become untenable?

 

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  • JC

    Over the 2006 – 2009 period, a number of banks are reported to have done this. Are we to see each individual bank castigated here or just some of them? Wouldn’t it be better to give a more detailed explanation of what happened, how it happened, what the current government might do to limit the possibilities of this happening again and whether any criminal activities were uncovered?

    Much as I don’t like Barclays, I see no point in solely bashing one bank when most of them were involved.

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  • Anonymous

    Without a full enquiry, how are we to KNOW who did this?

  • JC

    As you are aware, I was commenting on the article, not arguing that an enquiry was not necessary. Let’s have the investigation first to find out what happened, followed by the FSA hearings and (possible) fines. It may well be worth an enquiry then to understand why the system of regulation put in place allowed this to happen.

  • Anonymous

    Sure. As long as it’s not conducted as political blame game when this was a subject where there was a (mistaken) consensus before the crisis.

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  • Anonymous

    Incremental Risk Charge: An analysis: Going forward how much will the Libor scandal cost Barclays Bank and who will be chosen to lead its affairs. In the aftermath of the Barclays Bank Libor scandal (financial Hiroshima) and their greed and subsequent cover up tactics, we studied the future impact on the bank and its franchise in the next 6-8 months using the Monte Carlo simulation method and the capital asset pricing model. This has been developed using variable analysis on a common measure of the volatility of its ongoing business, i.e. its beta–which is determined using linear regression. These have been applied to the latest audited Barclays Bank balance sheet, their Libor rate rigging scenario and inferences drawn with 95% accuracy. The result highlights the following 5 points:
    1. In the next 12 months, as its market standing and franchise has suffered, the Barclays Bank group will have to make a loan loss provision of USD 5.75 billion.
    2. Their combined exposure (including paper transactions) is USD 1.35 trillion which they need to unwind at the earliest and reconcile their financials/book of accounts within 24 months. Overall loan losses to be written off could be around USD 3.5 billion and thus their paid up capital will be affected.
    3. Their International trade, LC and LC confirmation business, correspondent banking business will reduce by about 40 % in the next 12 months as their price/rate quotation/covenants/IM will be seen with suspect.
    4. As a result of (3) above, their overseas operations will reduce (some businesses will have to close down) by at least 30 % globally. This will open up a new avenue wherein, in the next 24 months, their overseas business will very likely be acquired by 2 Chinese and 1 Australian banking consortium.
    5. The above points indicate that they will definitely need UK Government bailout well within a year. The UK government is already planning to nationalize the bank and make it a pure local British Bank going forward with an Australian as its head.