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Barclays Libor probe warns of return of 'Governor's eyebrows' rule

The Barclays Libor scandal has shone a light on an unsettling return of the 'governor's eyebrows' rule, a policy that allows Mervyn King to act without discussion.

 
Barclays Libor probe warns of return of 'Governor's eyebrows' rule

The Barclays Libor scandal has shone a light on an effective return of the 'governor's eyebrows' rule – a historic central bank policy that allows Mervyn King and his successors to dismiss senior banking executives without discussion.

In a lengthy report into the manipulation of London's interbank lending rate, the cross-party committee of MPs said that not only did the Financial Services Authority (FSA) give in to public pressure to come down hard on Barclays, it exposed the possibility of the Bank of England's governor reigning all-powerful over the UK's financial services sector.

During the Treasury Select Committee (TSC)'s hearings into the Barclays scandal, much was made of King, his deputy Paul Tucker and FSA chief Lord Adair Turner's involvement in the low-balling of Libor rates and the subsequent resignations of senior Barclays executives Bob Diamond, Marcus Agius and Jerry del Missier.

The TSC said that King's involvement was 'difficult' to justify, even though the governor defended his actions by saying the Bank of England would take on responsibility for the banking system when the FSA is split into a two-tier monitoring system, establishing the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA).

The TSC argued: 'The FSA did not intervene with respect to Diamond’s future prior to, or on Wednesday 27 June 2012, when the FSA final notice was published. The FSA only appears to have intervened on Friday 29 June, two days after the publication. This perplexed Marcus Agius who told us “we went from Wednesday, [27 June] when Bob Diamond had the support of the regulators, to Monday night [2 July], when we were told in no uncertain terms he did not have the support of the regulators”.

'This about-turn by the FSA appears to have been the result of the vociferous public and media reaction in the days following the publication of the final notice. If this is indeed the case, then what many would consider the right decision was taken for the wrong reasons.'

The TSC, which is chaired by MP Andrew Tyrie, said the actions of the Bank of England and FSA had exposed 'implicit and potentially arbitrary power' for King (pictured) to force out senior figures in the financial services industry.

The TSC said: 'The return of the "governor's eyebrows" - which many will welcome on this occasion - comes with the need for corporate governance safeguards.  In this case, the governor of the Bank of England and senior FSA staff did discuss the issue and acted in concert.  There was, as a result, some minimal check and balance.

'However, once the Bank of England assumes full responsibility for financial stability and macro-prudential supervision, even this minimal check and balance will disappear.  The governor of the Bank of England will stand all-powerful and able, by dint of raising his eyebrows, effectively to dismiss senior banking executives without discussing it with, or consulting, anyone.  This is unsatisfactory.'

Smokescreen

In conclusion to the 122-page study and the earlier hearings into the Libor scandal, TSC chair Tyrie said that  every witness who appeared before the committee agreed Barclays' actions were 'disgraceful', however the committee also felt that discussions between Diamond and the Bank of England were used as a 'smokescreen' when the furore refused to die away.

Tyrie said: '[The actions] were made possible by a prolonged period of extremely weak internal compliance and board governance at Barclays, as well as a failure of regulatory supervision...as the report points out, it remains possible the information released in the Barclays file note, regarding a dialogue between Mr Tucker and Diamond, could have been a smokescreen put up to distract our attention and that of outside commentators from the most serious issues underlying this scandal.'

Bigger fines

As a result, the committee has called for action in a number of areas, including higher fines for firms that fail to co-operate with regulators, the need to examine gaps in the criminal law, and a much stronger governance framework at the Bank of England.  Barclays was fined a record £290 million after it admitted to manipulating Libor, and earlier this week it emerged that  UK banks will now face the wrath of US regulators for the same thing.

7 comments so far. Why not have your say?

Raymond Randalle

Aug 18, 2012 at 10:11

The London Financial cess-pit has got away with far too much for far too long and the stench of cover-up is high.

London and Luxembourg do not want any SFO's taking a close look at anything as there is much that ties the 2 together in a multitude of sins, scams and schemes they would rather we knew nothing about.

We cannot hope either go these Financial pits will clean up their act and can only hope the USA can set an example others will have the courage to follow.

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Raymond Randalle

Aug 18, 2012 at 10:13

We cannot hope either OF these Financial pits will clean up their act and can only hope the USA can set an example others will have the courage to follow.

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snoekie

Aug 18, 2012 at 10:33

King is a functionary (and his record has now been revealed to be abysmal), not independent, and he has shown scant initiative on behalf of the citizens of this country.

Frankly, a proven waste of space for all his theoretical knowledge. On the evidence, he doesn't even talk to his subordinates who are out there, and also, on the evidence, not much better.

Perhaps he to needs to get his P45, no notice, no pension.

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Rob Walker

Aug 18, 2012 at 11:09

Looking at all the 'Scandals' of Payment Protection insurance, other product mis-selling and LIBOR, it is clear that we have no proactive financial policing in this country and regulatory authorities only react when someone kicks it into action (like the press, eh?). But then they suddenly appear to have draconian powers to remove the leaders of large organisations without due process.

Move on to the Press enquiry and how many raised eyebrows does it take to remove Rupert Murdoch? Does this tell us something about who is really running the country?

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Raymond Randalle

Aug 18, 2012 at 11:39

King, like most of the complacently incompetent Top Cats has got too big for his cosy boots.

The regulators are cosily incompetent too and are obviously wooed away from doing their duty and protecting the people of Britain from abuse of position and power by those who are guilty of abusing the public.

If the British press does not report on the growing anger of the victims of the Financial Terrorism we are seeing in the main financial centers like London where corruption is rife and out of control, then things can only get worse.

Britain at the top is complacent, arrogant and pretends not to notice what they do not want us to know about.

The press and media must not fail in its duty to name, shame and report the truth as it has apparently been asked to do.

It is time for action to expose the failures and abuse and not to perform a patchwork cover-up .

Patch-up cover-ups have led to the disgraceful mess Britain is in today.

No Olympic gold medals not Royal pomp and ceremony can take away from the fact that London is classed along with the most corrupted financial centers where arrogance and cover-up is the norm.

The Club of banker's friends politicians, regulators, judiciary and press should wake up to the anger of the victims of this never ending financial Terrorism.

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ClothKap2

Aug 18, 2012 at 12:00

But of course, the US will only tackle British companies, leaving their own to continue exploiting anyone and anywhere they can. The trouble with the entier financial sector is a totl lack of any moral fibre: The belief that ethics is a county on the other side fo the river, and long term planning is unzipping your trousers before actually pissing. - Competition os "if they can screw their customers like that, then so can we".

If it ain't illegal then it's OK, and the only 'crimes' are telling the truth and being found out (Bit like MPs really)

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Paul 2

Aug 21, 2012 at 13:46

The problem with dismissal by raised eyebrows is that it is cheap, quick and effective. What is needed is a large department of expensive public servants to handle such things - NOT

Meanwhile what do House of Commons members know about banking?

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