Barclay's LIBOR manipulation

vivatifosi

About to start on Sky News, debate on the state of UK banking. Participants: David Buik, Joseph Stiglitz and Lucy Marcus (business woman). Also interviewed: Nick Leeson.

Will try and put up notes as it gets underway.

vivatifosi

Also joining the panel George Matthewson (ex RBS).

Should Bob Diamond be resigning?
Matthewson: he's in a weak position as the part of the bank in which the problem was happening in as the part he was responsible for at the time, but we need to be wary of calling for heads to roll.

Matthewson: the emails showed a total lack of responsibility and understanding of what their real position was. There has been a growing need for profit that has been driven partly by commercial pressures but mostly from the bonus system prevailing across all the banks, but particularly investment banks.

Murnaghan: do you feel any responsibility:
Matthewson: I do examine my self conscience but have been seen as anti- the bonus culture and I was also concerned about the bringing together of the two types of banking and the two should be kept separate as per Vickers. It's a cultural thing. The culture of the individual is put ahead of the organisation in investment banking. They regard themselves as a profit centre and the bonus is the biggest thing that happens every year.

vivatifosi

Should banks be separated: Stiglitz: its a good idea. I was strongly opposed to the appeal of Glass-Stegall, two different cultures, too big to fail, too big to manage, conflicts of interest. This is only one of a series of scandals over the past decade and it needs to be seen in that frame.

Marcus: we need to look as a whole as how our cultures are running, issues such as Enron etc too. These organisations need to realise that the little people now know what's going on. It's not just banking.

Buik: its too easy to go with off with their head and down to the tower. There has been disgraceful behaviour, but most of this behaviour is historical. It should have been nipped in the bud earlier (2007). LIBOR is obsolete, there is no interbank market: without the central banks and QE it no longer exists as was and should be looked into. Regulatory authorities are on top of game now, five years ago they were not.

STIGLITZ: This is banks worldwide, not just British. Accountability: if you are willing to take the bonuses based on previously false profits, you get the upside but don't take responsibility when things go bad.

Goes to break.

vivatifosi

Introduces Nick Leeson.

When you see what's going on nowadays do you think nothing's changed?

Leeson: it's more of the same. Until the culture changes nothing will change fundamentally in the industry. The problem with the culture is that if you step over the line there needs to be a control that pushes you back into place. Nobody gives the regulators a lot of respect. The top of the regulators game is the bottom of the bankers game. If they don't put in place deterrents they won't change things. Deterrents need to be clear in everyone's mind and they need to know what will happen so they don't overstep the mark. This is across a number of banks and there is something inherently wrong with that. We get the same rhetoric every time. Either a) its one individual or b) it was a long time ago and its changed. The deterrent though isn't really there and people working in banks think they can do what they like and their is contempt and disdain for the regulator. It's not just about pay, its also very competitive, which is why controls need to be very tight. Regulators should be paid more and be better skilled so they are fully able to interrogate what's going on. It needs to go to the top. There were people in my case who knew what was going on. It may not go all the way to the top but it goes close to the top.

vivatifosi

MARCUS: it shouldn't be in compliance terms "being seen to be doing" you should be doing this as part of your culture, to stay within the rules.

BUIK: I loved the candidness of Nick. Today we are better off. The Bank of England is going to take control of the FSA through Paul Tucker, Andy Halldane and Paul Fisher, 3 quality individuals who have finger on pulse of banking market. Banks need to see how badly they have done in terms of disappointing their clients. CEOs should have a monthly press conference saying what they've done and what they are doing about it. It should not be being broken by the Daily Mail or the news.

STIGLITZ: Cable was right. Shareholders have very limited control. This is a problem (separation between ownership and control) that has been happening for 85 years. Shareholders need to have more than a voluntary say in pay. What's outrageous though is not just the amount of pay but the design of pay that encourages excessive risk taking, short sighted behviour and dishonest accounting. We've known about this for more of a decade. If you were designing an incentive scheme it would be based on relative performance compared to others.

Break again.

vivatifosi

Sorry guys, this should probably have been a separate thread but didn't get a chance to start one before programme started. If you want I will move info.

Should corrupt bankers go to prison: Introduces Rosalind Wright, former director SFO...

There are criminal investigations pending in the USA and may be some pending in the UK. The new director will do all he can to bring people to justice, but its a matter of evidence. The law is there in the shape of the fraud act (fraud by misrepresentation), however act didn't come into place until 2007. Prior to that can act under theft act (false accounting). It depends on what evidence you have, that's a legal problem. (Murnaghan: LIBOR what about manipulation) Wright: Not covered by market manipulation (cartelling) or price fixing as LIBOR falls outside of that.
SFOs budget has been cut severely and is inadequate to deal with the complex cases that require a lot of money to investigate and prosecute thoroughly.

Murnaghan: is this a British problem? Stiglitz: no, we've had similar problems in the US with Bernanke etc. Courts in US threw people out of their homes who didn't owe money, yet no-one has been to jail because banks consider themselves too big to be held accountable.

BUIK: you will find that when this investigation is complete at least another 20 banks are in there. It is impossible to deal with LIBOR on its own. This is a cartel. To suddenly pop Bob Diamond in the dock is wrong, it has to be seen in the whole.

MARCUS: we need a Levenson type enquiry by a neutral individual. Taking away from Levenson its a teaching and learning experience for the people. People look as banking as a whole and see it as unstable.

STIGLITZ: we had 40 years of stability post the introduction of Glass Steigall, we can make the system work.

BUIK: we need to learn to grow up and run our own businesses. We don't need an enquiry. We need regulatory authorities to be given authority to implement discipline and laws.

MARCUS: we need boards, individuals, shareholders, to take responsibility and we need transparency and ethics.

BUIK: yes standards of decency need to be observed. The regulatory authorities I think are a long way down the line to getting this sorted, then onwards and upwards.


That's all folks...

michaels

Thanks very much Viva.

I don't think a big 'enquiry' is the answer. Labour have noticed that with Leveson most of the mud seems to stick to the party currently in power because the sins of their predecessors don't matter any more as they are no longer in the picture and thus see a big enquiry as being a political victory regardless of its actual impact on solving the problem.

As we are discussing in my other thread the 'correct' answer seems to be to separate retail and investment banking...the sting in the tail being that that might undermine a large chunk of the UK economy and tax base.

I think the cartel bit is important, I can't see that banks working together to manipulate interest rates is any different to airlines colluding to set fuel surcharges and freight rates for which there are already laws allowing fines and jail sentences, and of course civil court redress. A quick google of 'libor class action' shows that some US lawyers are expecting pretty big numbers for settlements.

vivatifosi

michaels wrote: »

I think the cartel bit is important, I can't see that banks working together to manipulate interest rates is any different to airlines colluding to set fuel surcharges and freight rates for which there are already laws allowing fines and jail sentances, and of course civil court redress. A quick google of 'libor class action' shows that some US lawyers are expecting pretty big numbers for settlements.

I think America is where the action will come from. Judging from the SFO woman, because the LIBOR is not covered by cartelling law in the UK, criminal action could not be taken here. If collusion has taken place across banks though and America's laws are drafted differently, there's no reason it can't take place there, if that's where offence took place. Plus of course, there's nothing to stop civil action here.

vivatifosi

Breaking news: RBS has sacked 10 traders over their role in LIBOR fixing.

http://www.huffingtonpost.co.uk/2012/07/01/rbs-sacks-ten-traders-ove_n_1640985.html

michaels

I must admit when Barclays first fessed up I assumed it was to take advantage of the 'whistle-blower' immunity from prosecution in cartel cases. I would not be at all surprised to see criminal charges (and extraditions) at other banks.

vivatifosi wrote: »

I think America is where the action will come from. Judging from the SFO woman, because the LIBOR is not covered by cartelling law in the UK, criminal action could not be taken here. If collusion has taken place across banks though and America's laws are drafted differently, there's no reason it can't take place there, if that's where offence took place. Plus of course, there's nothing to stop civil action here.