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London - Company culture at Barclays was “deeply flawed” and
the Bank of England’s (BoE’s) hand in removing its chief executive Bob Diamond
was hard to justify, a UK parliamentary report into the “disgraceful” rigging
of the London interbank offered rate (Libor) said on Saturday.
Few emerge unscathed from the treasury select committee’s
300-page report and annexes, based on a string of high-profile hearings after
Barclays was fined a record $453m (R3.8bn) on June 27 for manipulating Libor.
“Such behaviour would only be possible if the management of
the bank turned a blind eye to the culture of the trading floor,” the report
said.
“The standards and culture of Barclays, and banking more
widely, are in a poor state,” it said, adding that it was unlikely that the
bank acted alone.
Barclays is the first of several banks expected to be fined
for rigging a rate which forms a reference point for home loans, credit cards
and other financial transactions worth over $350 trillion globally.
The report slammed the UK’s Financial Services Authority
(FSA) watchdog for being behind the curve, giving ammunition to London’s
critics by starting its own formal probe into Libor setting two years after US
authorities had kicked off theirs.
It said the delay contributed to the perceived weakness of
London in regulating financial markets and recommended many reforms, several of
which are already being looked at elsewhere, such as criminal penalties and
direct oversight.
The FSA responded that its managing director, Martin
Wheatley, would consider the report’s findings in his government-commissioned
review of Libor due to be published in September. The government also welcomed
the report and said it would consider any necessary legislative changes called
for by Wheatley.
Barclays said it did not expect to agree with all the report
but “we recognise that change is required, not least to restore stakeholder
trust”.
The FSA and US authorities are probing HSBC, Royal Bank of
Scotland, Lloyds and several non-UK banks in connection with possible
manipulation.
Diamond, Barclays’ chairperson Marcus Agius and chief
operating officer Jerry del Missier all quit in July.
BoE governor Mervyn King and FSA chairperson Adair Turner
told legislators they did not demand that Diamond step down, but the report
concluded that their intervention meant it was a “fait accompli”.
King and Turner stepped in following public outrage over
Barclays after the rigging was disclosed in June.
“The governor’s involvement is difficult to justify,” the
report said, dismissing King’s defence that the bank would be regulating
lenders anyway from 2013 when the FSA was scrapped. The central bank must be
made accountable to avoid such potential abuses of power, the report said.
BoE said in a statement it did not have any regulatory
responsibility for Libor at the time and that King’s meeting with Agius on the
day he resigned was “fully justified”.
The report criticised Barclays’ board for several failings
and Diamond himself, saying his testimony to parliament was unforthcoming and
selective, and fell well short of the candour and frankness expected.
A focus of the hearings was a conversation between Diamond
and BoE deputy governor Paul Tucker in October 2008 when markets were in
meltdown after the collapse of US bank Lehman Brothers the previous month.
They agreed that the conversation did not amount to
directing Barclays to “low ball” its Libor rate submission in a bid to show it
had no problem borrowing from other banks.
The heavy public emphasis by Barclays on this conversation
may have been a “smokescreen” to distract from more serious failings at the
lender and made no fundamental difference to the bank’s behaviour, the report
said.
“Barclays did not need a nod, a wink or any signal from the
BoE to lower artificially their Libor submissions. The bank was already well
practised in doing this,” it said.
Tucker said that possible clues to dishonesty did not ring
alarm bells at the time, suggesting “naivety” on the part of the BoE, the
report added.
Tucker has long been seen as a candidate to replace BoE governor Mervyn King, who stands down next year.
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