King attacks 'deceitful' banking culture in wake of Barclays rate-fixing scandal
THE Governor of the Bank of England has launched a scathing attack on "deceitful" investment banking and called for a "real change in the culture of the industry" stretching right to the top, in the wake of the Barclays rate-fixing scandal.
Sir Mervyn King, who refused to back Barclays chief executive Bob Diamond, added that the behaviour of Barclays’ traders underlined the need to separate high street banking from casino trading operations.
“What I hope is that everyone now understands that something went very wrong with the UK banking industry and we now need to put it right,” he said. “From excessive levels of compensation, to shoddy treatment of customers, to deceitful manipulation of one of the most important interest rates.
“We can see that we need a real change in the culture of the industry. And that will require two things, one is leadership of an unusually high order and [the other is] changes to the structure of the industry.”
Sir Mervyn’s comments came just days after Barclays was hit with record fines of £290m for trying to rig the inter-bank interest rate, and on the morning that regulators ordered several major banks to compensate small businesses who were mis-sold complex financial instruments pushed by their investment bankers.
At the Financial Stability Report press conference, the Governor twice refused to comment on whether Mr Diamond was a "fit and proper" person to be running Barclays. “That is for another day and another place,” he said. Mr Diamond is facing calls to resign over the scandal.
However, Sir Mervyn's colleague Andrew Bailey, chief executive of the Prudential Regulatory Authority, hinted at the regulatory pressure Mr Diamond is under. He said: “If, as we now see, there is a fundamental breakdown of trust, then the boards of these institutions have to recognise that the trust has to be got back. And they have to think very hard about how that is done. I’ll leave it there.”
Lord Turner, chairman of the Financial Services Authority, said the cultural problem in investment banking was not limited to the rates teams caught up in the Libor fixing scandal.
Condemning Barclays for its behaviour, he said: “There is a degree of cynicism and greed that is quite shocking. I think we would be fooling ourselves if we thought that some of the behaviour and culture evidenced in Libor fixing are not found in some other areas of trading activity as well.”
Lord Turner and Sir Mervyn said the abuse reinforced the need to separate investment and retail banks, as planned under the Vickers reforms being pushed through by the Chancellor. Under the plans, retail banking will be ringfenced and protected from investment banking, which will – in theory – be allowed to fail without damaging the group's core lending and deposit-taking operations.
“The idea that the culture of investment banking is the same as the culture of basic banking, it is very clear now that those two cultures are very different and they need to be separated,” Sir Mervyn said. “I would hope that Parliament will legislate on that as soon as they feel able to, on all of the Vickers proposals.
“That's what we need to do to change the structure of the industry and provide the right incentives.
“What is important is that people will take reassurance that we will make sure that this system, which was rigged in the favour of at least one if not several institutions, will be changed.”