The chief executive of Barclays Bank, Bob Diamond, has resigned with immediate effect, saying that the on-going scandal over Libor manipulation, which cost the bank $452.5m in regulatory fines last week, risked “damaging the franchise”. Simultaneously, the UK government has set up a Parliamentary inquiry into the affair.
The rigging of inter-bank lending rates, which set the base point for consumer and business loans and underpin trillions of dollars of derivatives contracts, often used by treasurers for hedging purposes, had already claimed Barclays’ chairman, Marcus Agius, who resigned yesterday but will now stay in place, at least until a replacement is found and perhaps for good.
The UK Chancellor, George Osborne, welcomed Diamond’s departure, saying that he hoped it was the "first step towards a new culture of responsibility in British banking" and commenting that “it is the right decision for the country" and that the UK needed a strong Barclays to focus on lending to aid economic recovery.
He also announced a Parliamentary inquiry into professional and cultural standards in banking, which will be led by Andrew Tyrie MP, the chair of the Treasury Select Committee, and will report by the end of the year. The timeframe should allow any subsequent recommendations to be included in the banking bill in spring 2013, which will introduce Sir John Vickers’ recommendations to ring-fence retail banks from their investment arms.
In a prepared statement explaining his resignation, Diamond said: "I am deeply disappointed that the impression created by the events last week about what Barclays and its people stand for”, adding that he believed the impression, “could not be further from the truth".
Diamond will still go before MPs on the Treasury Select Committee in Parliament tomorrow to answer questions about the Libor affair, which includes other banks, such as UBS, RBS, Lloyds, Citi and others, who are also under investigation by US, UK and EU regulatory bodies for Libor and/or Euribor manipulation, with the equivalent European rates also coming under suspicion.
The Parliamentary Committee on Wednesday 4 July is likely to question Diamond over conversations he is said to have had with the deputy governor of the Bank of England (BoE), Paul Tucker, about Barclays' Libor submissions at the height of the credit crunch in 2008. Some Barclays’ managers have been briefing against Tucker, saying that they thought they had walked away with tacit permission to lie about what they were paying to borrow to the British Bankers’ Association (BBA), which collates Libor, in order to protect the position of the bank during those heady days when banks were tumbling. The same Committee will then be tasked with running the Parliamentary inquiry into banking standards.
In separate moves, the Serious Fraud Office says it is considering whether to bring criminal charges over the Libor scam, although seeing it as the offence is not officially criminal they may struggle to expand the fraud angle into a case. It is easier to launch civil law suits for lost revenue due to paying the wring interest rate, as many businesses and consumers in the US seem to be doing against Barclays, than it is to bring a criminal case where a higher level of proof applies.
Meanwhile, Martin Wheatley, the chief executive designate of the Financial Conduct Authority (FCA), the successor body that will take over from the discredited Financial Services Authority (FSA) in the UK, will also lead an inquiry, specifically into the Libor affair and what new reporting system should be put in place in the future. The BBA has already called for the UK government to take over the running of Libor.
The call for change has been supported by John Cridland, Director-General of the Confederation of British Industry (CBI), who said: “Libor should be set on real market data and independently regulated, banks’ internal controls must be strengthened to underpin a necessary change in culture, and individuals need to be held to account where appropriate.”