Mark has appeared on BBC News Channel, Sky TV, Radio 4 and Radio 5 over the past few days as the LIBOR banking has unfolded. This sets out his views on this fast moving story.
I suspect that today’s resignation of Barclays’ Chairman, Marcus Agius, will be the first of several high profile departures in the weeks ahead.
For those who wistfully hoped that Barclays alone was implicated in this LIBOR scandal, the news that RBS had fired four traders following irregularities and that the Bank of England may also be involved (not so much the raised eyebrow of the Governor, more the closed eyes of the Old Lady of Threadneedle Street) comes as a grievous blow.
This is rapidly developing, but I reckon it would be difficult to overstate the potential impact and importance of this latest banking scandal.
The paradox is that this episode may prove to be the moment that public anger reaches boiling point. For LIBOR manipulation arguably has less direct impact on taxpayers than much we have experienced since the financial crisis began. Yet the greatest damage here could prove – and as you might imagine I say this with the heaviest of hearts – to be to the City of London’s position as a highly trusted worldwide financial centre.
For key City institutions to be seen as manipulating the London Interbank Offered Rate is akin to debasing ones national currency – consider the sheer number of financial instruments traded in the City of London each and every minute of the day, whose price is set by reference to LIBOR.
I realise that this will very likely lead to a feeding frenzy of class-action litigation most likely originating in the US, but more importantly still risks doing lasting reputational damage to the City of London. It is, therefore, imperative the appropriate authorities get to the bottom of this fast.
Like it or not our economy is and will remain massively dependent on financial services. There is no comparable sector emerging which will provide jobs or earnings to anywhere near the same extent anytime soon.
Despite all the talk over recent days of criminal sanctions being impossible to sustain, I am not so sure. The manipulation of LIBOR, even if only for institutional gain, is essentially fraudulent activity. It might fall outside the FSA code but the Fraud Act 2006 or most obviously the Theft Act are likely to apply.
However, amidst all the understandable furore, it is also important to nail the understandable misconception that it has been “business as usual” in the City since 2008. There has been a huge jobs cull alongside falling salaries and bonuses – for the vast majority of workers.
Amidst all the headlines about super-earnings and vast bonuses they remain assuredly the exception rather than the rule. In addition, the government is committed to further regulation with the Financial Services Bill on its way through parliament and the Vickers reforms to come in a Banking Reform Bill which will be published later this year. Given these potentially game changing developments I hope the Treasury will be open-minded to looking beyond the Vickers recommendation – both to accelerate the long-stop timing (currently set at 2019) and also examine whether a fully fledged breaking up investment banks from retail banks might prove more practicable, publicly acceptable and long-standing than the ring fence provisions that the Vickers Commission has proposed.
Whatever happens in the coming months it is of overriding importance to restore trust in the financial institutions based in the City as well as confidence in the UK’s regulatory framework if the City is to survive as the world’s pre-eminent global financial centre.