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Mervyn King lays into 'deceitful' and 'shoddy' banks

'My word is my libor' is now dead, Bank of England governor says, but won't be drawn on Barclays chief Bob Diamond's future.

 
Mervyn King lays into 'deceitful' and 'shoddy' banks

Mervyn King, governor of the Bank of England, has spoken out strongly against banks’ manipulation of inter-bank lending rates, calling for ‘cultural change’ and an end to the 'shoddy' treatment of customers.

King, presenting the Bank’s financial stability report, was speaking after the announcement of Barclays’ Libor manipulation fine and the news this morning that banks would have to compensate businesses over the mis-selling of interest rate hedge products.  

‘We need to put it right… both the culture and structure... from excessive levels of compensation to shoddy treatment of customers to the deceitful manipulation of one of most important interest rates.

‘The future calculation of Libor on "my word is my libor" is now dead,’ he added, but he refused to be drawn on questions of Barclays’ chief executive Bob Diamond’s fitness to run the bank.

Adair Turner, chairman of the Financial Services Authority (FSA) meanwhile said the cynicism and greed in the Libor case had been 'quite shocking'.

King said the implementation of the Vickers banking reforms was the most important first step and that a ‘Leveson-style’ enquiry into the banks was not necessary.

Building a cushion

British banks must build a sufficient long term capital ‘cushion’ against heightened uncertainty in the eurozone, the Bank of England said, but can use short term cash piles for market shocks.

The Bank of England’s new funding for lending scheme means banks ‘are free to use their regulatory liquid asset buffers in the event of a liquidity stress,’ it said in its financial stability report.

UK banks’ holdings of highly liquid assets have tripled since the end of 2008, the Bank of England said, providing protection against potential future funding strains. ‘In the event of short-term liquidity shocks, UK banks could run down these buffers.’

But at the same time, the central bank says that a long term capital cushion may temporarily need to be above that required under the global Basel III standards. This would help increase the still-suppressed lending to the real economy.

‘The increase in the banks’ aggregate capital has been small, and they have not sought to raise external capital, and meanwhile the risks facing banks have not diminished,’ said King.

‘Banks should continue to restrain cash dividends and compensation in order to maximise the ability to build equity through retained earnings,’ the Bank’s report says, in a repeat of previous warnings.

17 comments so far. Why not have your say?

Martyn

Jun 29, 2012 at 12:40

"‘Banks should continue to restrain cash dividends and compensation in order to maximise the ability to build equity through retained earnings,’ the Bank’s report says, in a repeat of previous warnings."

Banks have been telling their business customers to do this for years!!!

Do as I say, not as I do!!!

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John Osborne

Jun 29, 2012 at 13:07

Perhaps if they abolished all bonuses and gave their executives lower salaries in line with the rest of the population there would be more to lend to small businesses and room for dividends.

No way are they justified as the banks' actions and performances have testified. There is nothing "special" about the jobs that warrant it.

Most people in this country are paid for doing a job, not to be given an additional unjustified handout.

The corrupt bonus culture has been going on for far too long to everyone's cost and has spread like a self justifying cancer to all boardrooms.

We need a company culture that works for the benefit of everyone, not just the top fat-cats.

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Stephen Griffiths

Jun 29, 2012 at 14:18

Over-inflated wages and bonuses lead to endemic corruption. Wow...didn't see that coming.

Lord Turner stated in 2009 that banks were socially useless and needed much heavier regulation and taxation to curb excessive pay and restrict dangerous practices. Why has nothing been done? Will it really take the public taking to the streets and torching a few banks to help the government to develop a backbone on this issue?

Ironically the conservatives are currently governing a giant socialist nationalised banking system. Break up the old school UK banks and sell them off. Let's take the hit...learn our lessons and start to rebuild our shattered reputation as an honourable country again. Frankly it's becoming increasingly embarrassing to be British.

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snoekie

Jun 29, 2012 at 14:19

Merv, dear deceitful Merv, "to the deceitful manipulation of one of most important interest rates", kettle calling the pot............., what have you been doing for the last 4 years? Will you and your bosses be paying the savers compensation and get the sack sans pension?

No, I thought not.

You are in no position to comment, you are leading the dishonest brigade!

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Anonymous 1 needed this 'off the record'

Jun 29, 2012 at 14:20

It is a corrupt bonus culture the laugh of the week is Bob Diamond trying to imply it was only a small grup of lowly people were involved I would love to see written copies of the minutes of the ALCO (Asset and Liability Committee) which would have constantly considered the ability of Barclays to borrow on the Interbank Markets and the high price they were having to pay this committee would have some of the most senior Barclays people on it including I assume Bob Diamond and the Finance Director Chris Lucas. It ceratinly existed when I was Deputy Chief Executive of Markets a few years ago at Barclays-

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Just a few thoughts

Jun 29, 2012 at 14:51

Just a few thoughts for the people who are continually attacking the employees who are getting these 'unjustified' bonuses....

How do you think they got these jobs??

They paid attention at school, went to college, and university studied hard and got the grades, went through the tough interview processes... Having applied themselves for many many years why should they not get jobs paying salaries and bonuses of this size??

It is my opinion that the people continually 'bashing' these clever people should take a look at themselves, and ask why are they making these comments??

Are they jealous that they are not in the same positions with the same salarys?? Of course!!

Are these people at work at 7am in the morning, not leaving until 7pm at night?? Doubt it??

Do these people have holidays?? Or if their boss says last minute sorry you are needed in the office next week have to cancel your holiday??

Why should they not get compensated at a higher level than the dregs of society who are making these comment, that don't pay attention in school, that don't care about bettering themselves, and live off the state benefits that they have not paid in to the welfare system for!!

Get over it... we are not in Communist Russia lead by the Bolsheviks!! We have our freedom, and reap what we sow!

For the record, I do not have a job with a high salary or a large bonus, but then again I hated school, but I have no reason to moan about others getting what they deserve.

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Ladysaver

Jun 29, 2012 at 17:35

'Just a few thoughts' is completely over the top. On the whole, people don't mind hard work and talent being rewarded. What people mind is endemic corruption. The very fact that banking is so important to our economy means that it requires a very high standard of integrity, absolutely proper governance / duty of care, and a culture from top to bottom that nurtures this at every stage. Manifestly, this has been lacking. People are right to be angry and worried. The banker-bashing is not because these people earn a lot of money, but because they appear to earn it by being corrupt.

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Franco

Jun 29, 2012 at 17:39

Just like 2008 when the banking scandal blew up, we are having a lot of huffing and puffing and demands to do better, But nothing will be done , the top 1/2 % will continue to get everything and keep the peasants satisfied with bread and circuses, because those in the government aspire to join that 1/2% in the banks when they retire from politics. Every thing is sawn up stupid.

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Jeff of Sidcup

Jun 29, 2012 at 18:09

I agree completely with 'Ladysaver'. Many people, me included, worked hard at school, carried on training and earn less in a lifetime than some of "traders" get as a bonus in one year. Their "profits" and "bonuses" are the result of socially useless activities carried out under conditions of endemic corruption. Warren Buffet said some years ago that derivatives were a sleeping bomb that could bring down the whole financial system. It looks as though he might be right.

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John Osborne

Jun 29, 2012 at 18:19

# Just a few thoughts #

I would dispute bankers are worth even half their salaries. The bonuses which they in effect award themselves are pure corruption.

Are most of them really all highly qualified in anything else than arts and accounting? Their "talent" appears often to be thinking of hidden ways to overcharge their customers.

Can they really be working efficiently by such long hours? Statistics prove the reverse.

Basic banking is boring bean counting, or should be, and they should be paid accordingly with no bonuses. Now much of it is done by computer anyway so is even more dull.

Whilst bankers, accountants and property developers are valued far more highly than engineers and entrepreneurs in our society, and failing to serve the economy professionally at minimal cost, then Britain will continue to decline.

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an elder one

Jun 29, 2012 at 19:51

John Osborne, I see we think alike; again. Actually, I think some of those 'clever' people don't think of customers at all but simply play with others money to see what clever things they can make of it; idle hands make mischief.

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Enrico

Jun 30, 2012 at 09:48

Do the 2 words "Fred Goodwin" come to mind.He did what he did to earn his huge bonuses and exorbitant salary.What do we think these CEO`s and top directors do? More of the same, and this will continue until there are laws that penalise these people by making an example of them.

"Just a few thoughts" must live in cloud cuckoo land.I can look up to anyone who works hard at school to better themselves in life but these top bankers must have taken degrees in corruption to get where they are now.How many times have these so called top bankers got to pull the wool over our eyes before we as a nation stand together to get justice done?

We elect politicians to run the country so please stop pussy footing around.Action not words is what is required or are we going to let the top bankers bankrupt our country to make themselves rich along with some of these elected politicians?

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TonyN

Jun 30, 2012 at 12:25

"Just a few thoughts" you are talking total rubbish, and that is not jealousy speaking. I earn good money and get a nice little bound, so I am happy with my lot. i typically work 8 til 7 - so I'm clearly not as macho as the bankers and traders, but there you go.

I do not, however, manipulate interest rates, fix share prices, naked short silver and gold, buy and sell stocks in collusion with other banks, hold down prices while my friends buy their fill of shares while "shaking out weaker hands" (i.e. scaring the poor unwitting private shareholders out of their share holdings).

I do not buy shares on my own whim with someone else's money, and if they go up, pretend it was bought on behalf of a friend's account, and if it goes down make my client take the hit. I do not use other people's money to literally gamble on the turn of a coin, then double down again and again when it goes wrong, potentially dragging down whole sections of society reliant on banking services for their livelihoods.

I know several people who work or used to work in the City and all, to a man, privately acknowledge that all of the above goes on all the time, all of it illegal but almost none of it ever stamped out by the toothless authorities and regulators.

Lehmans were leveraged something like 32 times the value of their assets at risk when they went bust. There is more money invested (gambled) in silver speculation contracts than the value of silver that has ever been dug from the ground in the last 2000 years. One "banker" recently lost more than $2bn on a bet with other people's money which he and the bank tried to cover up with other bets, and even greater manipulation of other markets.

"Bankers" spend billions on computer systems and super bright graduates to make computer programmes that make millions of tiny trades per day, tens of thousands of times per second to skim tiny profits per transaction, to simply pay themselves extra bonuses. Who else does this benefit? What enterprise, philanthropy or social good comes of it? how is the world improved in any way? This is not smart banking, this is downright stealing of money from "the weak" - i.e. US!

How is any of this useful or productive?

if a banker managed funds, ethically, sensibly, with hedging that is about hedging and not manipulation and gambling. if a banker worked hard to advise a business on a loan, an expansion, a merger, a takeover or a divestment and the sum of the parts was a better business, then that banker would deserve her pay and deserve her bonus.

We all lose by the actions of these people - in our taxes, our cost of living, our savings, our retirement investing. And in the end, when they bugger things up so badly that their entire edifice is about to crumble, what happens? The taxpayer bails them out, as we are so tied to the continued existence of these banks we cannot afford them to fail. Half a dozen scapegoats get a kicking, the banking world huddles down for 10 minutes, then they start it all off again.

So, no jealousy, and I am far from being from the "dregs of society" as you so graciously describe the people commenting on this thread. Reward is good, but reward for taking such excessive risks with everyone else's money and futures is not.

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TonyN

Jun 30, 2012 at 12:26

sorry - for "bound" read "bonus" above - damned spell corrections!

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Pilgrim

Jun 30, 2012 at 13:39

Didn't this rigging of Libor take place under the full view of the Bank of England and the FSA?

And isn't the BoE involved at the moment in flagrant attempts to rig the market in UK Treasury debt (through QE)?

What is the point of having a regulator at all if the regulator fails to keep the most important rate setting exercise, Libor, under supervision?

It appears clear that there is need for a significant change in culture in the BoE, the FSA and in the commercial banks based in London. All are broken, and all need repair accompanied by radical change.

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Paul Barrett

Jul 02, 2012 at 00:44

The way the banking system is presently set up, you can't really blame the bankers for taking advantage of the system.

A bank is promarily there to make profit for it's shareholders at the expense of it's customers.

Since the advent of the big bang the scope for making profits at the expense of customers has increased.

It has also opened up massive opportunities for the employees to make massive bonuses through manipulating the system.

the concept of lending money to a business and then make a return on that business making a profit is long gone.

Banking is now about the bankers making money for themselves.

They are not the slightest bit interested in the boring world of the real economy and normal business.

The profits just aren't enough.

The problem is that presently bankers can take massive risks knowing they cannot lose their shirt as the good old taxpayer is there to pick up the tab.

Until banking goes back to the days of the bank can go bankrupt, bankers will continue to take massive risks.

The economy however can not be put at risk by these banks going bankrupt.

I personally belive the banks are institutionally corrupt.

I don't blame them, it is the system that has allowed this to occur.

It has cost us taxpayer billions for their corruption and they they have devastated the economy and peoples' lives.

We need to ensure that bankers are no longer 'Masters of the Universe '; They should be the servants of the UK economy.

Yes they should be rewarded for engaging in socially useful projects but not money for money's sake.

That does not assist the whole economy, it just looks after a select few whilst the rest of us are carrying the can when they foul up on their casino banking deals.

Quite frankly we need to go bank to the days of the local bank manager who was seen as a pillar of the community, and who had in-depth knowledge of the locale and could make informed decisions, rather thsn reliance on a computer which invarably now says 'NO'.

The vast majority of this country now revile bankers more than estate agents!!

I know tarring all bankers with the same brush maybe considered unfair; but that is the way people perceive things.

There has be a major sea change in the way banking is done in the UK.

This has to be transparent so that no more will the tax=payer have to fund the irresponsible losses of banks.

Let us hope that all the things being discussed will come about and put the UK financial industry back to a position of being one of the most trusted professions in the UK.

At the moment who would trust a -anker!!?

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Rose G

Jul 03, 2012 at 10:27

Well said Enrico!

Our political systems supports this behaviour because they are all in it together. The bankers have been getting away with this behaviour because those in government, past and more recent, have allowed them to go ahead with this corrupt behaviour.

Until we set an example and send some of these shysters behind bars, they will all proudly walk away with their 'bonus' or money for keeping quite about where the bodies are buried.

We have a media that is just as rapacious, led by the monster that still is allowed to own such a large chunk of British media, we have a police force who instead of doing their job, who entertained and are being entertained by the media. It is the job of the media to publish news, not make up news, or hack phones to get information on celebs. Some of the most important institutions are so corrupt it beggars belief that we are living in the UK, corruption is so rife, we may as well relocate to India, Nigeria or anywhere where big business holds such an attraction, that they are allowed to push the boundaries of decency, while our politicians are calling for yet another enquiry, paid for by the taxpayer, but which will not name & shame the behaviour of those who inspite of their criminal behaviour, will eventually be given a lordship, don't you know.

Merv is a fine one, is he not? What exactly did he do about criminal behaviour by the banks while he was in charge of policy previously. As for the FSA, how do we expect them to do a decent job, when they do not know what is required of them, but still be awarded the knighthood - all of these big shots know what is wrong, but know too they have to let it go on, or their jobs will be on the line, not to mention their bonuses. Who knows how much Merv is in line to collect when he says goodbye - and what exactly will he be given his bonus for. We are still in a recession - he has not done anything to improve the lifes of ordinary people, just increased his shelf life and those of his peers.

The untrustworthy nature of knighthoods being handed out willy nilly to people with criminal intent, including Baroness Warsi and her ridiculous attempts to get a few more pounds of the taxpayers contribution, should tell you what kind of people are attracted to politics, and power.

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