Bank of England’s King says Barclays was in denial over Bob Diamond
BANK of England chief Mervyn King said today that Barclays was in such denial about the gravity of an interest rate fixing scandal that he was forced to tell the bank that regulators had lost confidence in Bob Diamond as chief executive.
But King, who has served as BoE governor since 2003, fended off repeated questions from lawmakers about who told Barclays bosses that Mr Diamond would have to go in the days before his July 3 resignation.
"The Barclays board ... was deeply reluctant to face up to the concerns," King said. "It became clear to me that they hadn't really taken on board the loss of confidence."
King added that Barclays must now create a new bank with a new culture to move beyond the Libor scandal.
He said a letter to Barclays in April from the Financial Services Authority (FSA) had already laid clear the concerns about culture at the bank, and when he met the bank's chairman, Marcus Agius, on July 2 he wanted to make clear the position.
"All of us involved had built up genuine concern that it is possible to sail close to the wind once. You can sail close twice or maybe even three times. But when it gets to four or five times it becomes a regular pattern of behaviour (and you) ... have to ask questions about the navigational skills of the captain."
Barclays was fined a record $453m last month by US and UK authorities for manipulating the London Interbank Offered Rate, or Libor, the interest rate that underpins transactions worth trillions of dollars worldwide, between 2005 and 2009.
In testament to the seriousness of the scandal, Britain's top financial regulators, including King, his deputy Paul Tucker and Financial Services Authority (FSA) head Adair Turner, were hauled before lawmakers for a grilling over who told Barclays that Diamond would have to go.
U.S.-born Mr Diamond fought to save his career for several days, but swiftly changed tack after a weekend flurry of phone calls and meetings between the most powerful men in the City ofLondon sealed his fate.
Once the darling of the City of London, Mr Diamond's Wall Street ways appeared at odds in an era of austerity brought about by a financial crisis for which many blame the bankers.
ERA OF GREED?
British finance minister George Osborne, whose family made a fortune in wallpaper, said the Libor scandal showed a culture of greed and irresponsibility in the City of London and on Wall Street.
Mr Diamond, who took home some £17m last year, has apologised for the actions of his traders but has criticised regulators and central banks for failing to heed warnings over Libor.
Mr King was questioned on his actions over Libor in 2008 when Timothy Geithner, then president of the New York Fed, emailed the Bank of England governor about recommendations to enhance the credibility of Libor.
The proposals, dated May 2008, included a section on how to eliminate the incentive to misreport banks' lending rates. But King said the Fed never sent evidence of Libor misreporting.
More than a dozen banks are being investigated for their roles in setting Libor, including Citigroup, JPMorgan Chase & Co, Deutsche Bank, HSBC Holdings Plc, UBS and Royal Bank of Scotland.
Morgan Stanley analysts have calculated the litigation risk to each of the 16 banks involved in setting Libor - which is an estimate of the rate at which banks could lend to each other - at between $60m and $1.1bn.