Weekend Economists Ride With Sally into the Sunset July 27-29, 2012

[Demeter]

42. Barclays had 'culture of gaming', says chief banking regulator

http://www.guardian.co.uk/business/2012/jul/16/barclays-culture-gaming-banking-regulator

The top banking regulator at the Financial Services Authority has accused Barclays of having a "culture of gaming" in testimony to MPs that laid bare the difficult relationship between the bank and its regulator. Andrew Bailey described this month's evidence of former Barclays boss Bob Diamond to the Treasury select committee of MPs as "highly selective" and said there was "a problem with the institution and that came from the tone at the top". As the FSA revealed it was investigating another seven institutions for attempting to manipulate interest rates, Lord Turner, the regulator's chairman, also indicated that he had dropped broad hints two days after Barclays was fined for Libor rigging that Diamond should leave the bank. Diamond quit on 3 July – six days after a record £290m fine was levied on the bank – following pressure from the Bank of England governor Sir Mervyn King. Turner was asked by MPs on the Treasury select committee about a letter he had sent to Marcus Agius, Barclays' chairman, in April raising concerns about the culture at the bank. The FSA chairman said he had never had to send such a letter to any other bank chairman.

The appearances of Diamond and Agius before the committee had already raised concerns about the bank, but Bailey said "there was a culture of gaming – and gaming us". He stressed that his own relationship with Diamond was not antagonistic. Diamond's deputy, Jerry del Missier, revealed to MPs that the bank's compliance department had been informed internally about the decision to reduce Libor submissions during the financial crisis. When the fine was announced, the FSA did not take any action against Diamond, and Agius has admitted to being shocked when told by King that his chief executive had "lost the confidence of his regulators".


The admission by the FSA that seven firms were still being investigated came as the authorities in the US stepped up their inquiry. The New York and Connecticut attorneys general have joined forces to investigate alleged manipulation of the rates. New York state's Martin Act gives its attorney general the most wide-ranging investigative powers of any state. Eliot Spitzer used the act to force a huge settlement out of Wall Street following the analyst scandal of the early 2000s.

In Britain the Serious Fraud Office is examining any potential cases for fraud while the row over whether there should be a full public inquiry into the banking industry – rather than a parliamentary one led by Andrew Tyrie who chairs the Treasury select committee – continues to rumble on. David Cameron was dealt a blow when the clerk of the house, one of the most senior parliamentary officials, raised questions about one of the prime minister's central arguments in favour of holding a parliamentary inquiry into banking – that the latter would be able to examine witnesses under oath. Robert Rogers wrote: "The debate on 5 July on the method of investigating Libor rate fixing and related matters demonstrated in some quarters a confidence that the taking of evidence on oath in parliamentary proceedings avoids all the difficulties I have so far touched upon. It does not." He said a parliamentary committee would suffer a "damaging and very public setback if the authorities reject a recommendation to prosecute a witness". It would face embarrassment if the prosecuting authorities decide it has harassed or badgered a witness. Rogers wrote: "These considerations may have been factors in there having been no prosecutions for perjury in respect of parliamentary proceedings since the passing of the 1911 Perjury Act."