"...our mistakes have been errors of judgment and not of principle.”
J.P. Morgan junior, 1933, in the middle of a financial crisis.
Today’s bankers can draw no such comfort from their behaviour.
The attempts to rig LIBOR (the London inter-bank offered rate),
a benchmark interest rate,
not only betray a culture of casual dishonesty;
they set the stage for lawsuits and more regulation right the way round the globe.
This could well be global finance’s “tobacco moment”…
Barclays is the first bank in the spotlight
because it offered to co-operate fully with regulators.
It will not be the last.
...LIBOR is used to set an estimated $800 trillion-worth of financial instruments,
affecting the price of everything from simple mortgages to interest-rate derivatives.
If attempts to manipulate LIBOR were successful
—and the regulators think that Barclays did manage it, on occasion
—then this would be the biggest securities fraud in history,
affecting investors and borrowers around the world.
That opens the door to litigation not just by the direct customers of implicated banks,
but by anyone with a financial interest in LIBOR.
...The British government has ordered a parliamentary review into its banks.
The evidence ...reveals two types of bad behaviour.
The first was designed to manipulate LIBOR to bolster traders’ profits.
...They were also colluding with counterparts at other banks,
making and receiving requests to pass on to their respective submitters.
...This bit of the LIBOR scandal looks less like rogue trading,
more like a cartel.
...If attempts to manipulate LIBOR were successful
—and the regulators think that Barclays did manage it, on occasion
—then this would be the biggest securities fraud in history,
affecting investors and borrowers around the world.
...During the crisis, a high LIBOR submission
was widely seen as a sign of financial weakness.
Barclays lowered its submissions so that it could drop back into the pack of panel banks;
it has released evidence that can be interpreted as an implicit nod from the Bank of England
to do so.
The central bank denies this...
...two tasks lie ahead.
The first is to find out exactly what happened and to punish those involved.
Where the only motive was greed,
the individuals directly involved in fraud should face jail.
If the rate was lowered to keep the bank afloat, and regulators were involved,
both the bankers and their rule-setters should explain
why they took it upon themselves to endanger the City’s reputation in this way.
...culture flows from structure.
...some rules must change.
LIBOR is set under the aegis not of the regulator but of a trade body,
the British Bankers’ Association.
That may have worked in the gentlemanly days when “the governor’s eyebrows”
were enough to keep bankers in order.
...LIBOR and its equivalents like EURIBOR should be set
on the basis of actual, not estimated, borrowing costs.
...More banks should therefore be required to join the panel of submitting lenders,
so that it is less easily gamed.
...“The banker must at all times conduct himself
so as to justify the confidence of his clients in him,”
J.P. Morgan junior.
That trust has been forfeited: it must be regained.
1 comment:
Because it was not relevant to the discussion.
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