Huh ? Isn’t that what banks do ? Surely the Libor is an “offered” rate – surely the point is to negotiate around your strengths and weaknesses. I can see why people might be jealous of their success, and shocked by their risk-taking with hindsight, but what have they actually done wrong ? Broken some regulation no doubt. (Adds interest to Niall Ferguson’s “Rule of Law and its Enemies” – one of the enemies is dumb regulations. Comment below.)
[Post Notes :
OK – so where are the real issues.
(1) The problem was with Barclays Capital (as was) which was only ever loosely affiliated with Barclays as an operation. Had it’s own investment banking culture separate from retail. Diamond had already taken steps to get a grip – get one culture under one brand. (NB the “problem” is old 2008/9? and not news. The only news is Barclays being the first of the banks to have their fine announced, they are not the only investment bank involved.)
(2) The setting of Libor itself depends on returns of capital costs from banks to the central regulator – which I have to say sounds mad in the first place – a circular chicken and egg. Anyway, so even being conscientious, this is presumably a calculation for the bank – many transactions, many rates, many things to take into account. Even being prudent some judgement about which things to take into account, to err on which side is prudent and good business, incentives, etc? So to “lie” is a tough call when “reporting” – all reporting is a negotiation in my experience. In terms of who benefits / suffers my understanding is that the process of under-reporting costs generally kept rates lower and maintained confidence in stability ? (Not to be undervalued given the state of banking at the time.)
(3) Collusion between competing banks in establishing the numbers to report. Much more serious competitive anti-trust issue, though again it seems the incentives were the other way as far as costs to customers are concerned – opposite of monopolistic / cartel issues behind such rules – tricky one. The key thing here is who, how long, who knew, who sanctioned it. Culture. (The same “Murdoch” scenario.)
(4) The unprofessional tone of communications as rates were “successfully” negotiated. (Not actually seen emails, just a couple of apparent quotes so far – I’m researching that.) Black humour in coded language between workers at the work face, at the expense of the “clients” is perfectly normal, even in “caring” industries like teaching and health-care or any “support” services, so in a cut-throat financial risk-taking environment, it must be deadly I would imagine.
The real issue is 3 above, and whether the culture and incentives were right for the operation. Major problem is the regulators being so slow to act. Clearly with the banking system in crisis, poachers and gamekeepers both had incentives to be cautious in public. But this “news” is long after the events and long after changes are in motion to fix things, and long after recognition for further overhaul of regulation. Diamond seems like the last person you’d want to lose from the process right now (3 excepted).
PS The “Light Touch” meme is so misleading. The touch should be firm sure, the action decisive, but it should not be intrusive into the whole process. Simple but firm. We need good regulation, not more regulation. And what is good … continues …]
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