Barclays CEO Bob Diamond Succumbs to Pressure, Resigns in Libor Scandal
Barclays Bank CEO Bob Diamond, who initially resisted resignation over his bank’s fraudulent manipulation of the benchmark Libor inter-bank lending rate (as well as Euribor, the euro equivalent), has now resigned, a day before testifying before Parliament. The Bank of England and the Financial Services Authority, the two top regulators in Britain, reportedly encouraged him to go.
Mr Diamond said he was stepping down because the external pressure on the bank risked “damaging the franchise”.
BBC business editor Robert Peston said the Barclays boss was encouraged to go by the Bank of England and the FSA.
“They were unable to force him out,” our correspondent says, “because the recent FSA investigation into how Barclays attempted to rig the important Libor interest rates did not find him personally culpable.”
“However, as a regulated institution, it was impossible for Barclays’ board to ignore the revealed wishes of the two most powerful regulators in the City.”
Let’s come up with a comparison. Think about the day before Jamie Dimon testified in front of the Senate Banking Committee. Was there one second where he felt an impulse to resign? Did anyone from the Office of the Comptroller of the Currency or the Federal Reserve, and I mean anyone from the top all the way down to the mail room, think about asking him to resign? And it’s not like the Fail Whale trades are the only sketchy activity practiced by JPMorgan Chase.
In fact, we don’t have to even look to another bank for a parallel. This investigation into Barclays got started because the US Justice Department settled with the bank for a relatively small sum, $450 million (shared with UK regulators) over manipulating the Libor. The Justice Department agreed not to prosecute the bank, because they cooperated with the investigation. They “left open the possibility of prosecuting officers or employees” of the bank, as well as the other banks involved in the scandal, which basically includes all of them. But the track record is pitiful.
Getting back to Barclays and Bob Diamond for a moment, the now ex-CEO tried to blame the scandal on the regulators, who he said looked the other way at Barclays’ fixing of the Libor.
The authorities found that Barclays reduced its LIBOR submissions to protect the reputation of the bank from negative speculation during periods of acute market stress. The unwarranted speculation regarding Barclays liquidity was as a result of its LIBOR submissions being high relative to those of other banks. At the time, Barclays opinion was that those other banks’ submissions were too low given market circumstances.
To be clear, Barclays encountered no liquidity problems through 2007 and 2008. The inaccurate speculation about potential liquidity problems in the two periods noted created a real and material risk that the bank and its shareholders would suffer damage. It was, as you will recall, a period of extraordinary turbulence and uncertainty. This raised questions for the bank about the integrity of the LIBOR setting process, and various individuals within Barclays raised issues externally about that, including with the British Bankers’ Association, Financial Services Authority, Bank of England and US Federal Reserve.
The Bank of England did not take kindly to this, saying that Diamond “did not understand” that he had been instructed to not tamper with the Libor. Diamond maintains the charge, and claims that he will reveal “embarrassing details” about his dealings with the regulators at tomorrow’s hearings, if challenged.
Incidentally, Diamond could still walk away with a severance package of between £20-£30 million, showing there are still some similarities between the US and Britain’s financial systems. But that’s based on his lack of admission of guilt, which doesn’t totally square with the “Bank of England told me it was OK” alibi.
Bloomberg’s editorial board writes that “heads should roll” at other banks over the scandal. You have to put this in the proper context. The Libor governs the borrowing rates on virtually every consumer loan made, from mortgages to student loans to credit cards, to say nothing of the $700 trillion derivatives market. Artificially rigging these rates screws pretty much everyone on the planet who uses credit. It holds the largest class action potential in global history. And Barclays, as it says in the DoJ brief, didn’t act alone. Banks were apparently fighting it out to manipulate the Libor.
There are a number of scandals that “should be the scandal” to take down the financial system. Not many have the reach of this one.
Barclays CEO Bob Diamond Succumbs to Pressure, Resigns in Libor Scandal
Barclays Bank CEO Bob Diamond, who initially resisted resignation over his bank’s fraudulent manipulation of the benchmark Libor inter-bank lending rate (as well as Euribor, the euro equivalent), has now resigned, a day before testifying before Parliament. The Bank of England and the Financial Services Authority, the two top regulators in Britain, reportedly encouraged him to go.
Mr Diamond said he was stepping down because the external pressure on the bank risked “damaging the franchise”.
BBC business editor Robert Peston said the Barclays boss was encouraged to go by the Bank of England and the FSA.
“They were unable to force him out,” our correspondent says, “because the recent FSA investigation into how Barclays attempted to rig the important Libor interest rates did not find him personally culpable.”
“However, as a regulated institution, it was impossible for Barclays’ board to ignore the revealed wishes of the two most powerful regulators in the City.”
Let’s come up with a comparison. Think about the day before Jamie Dimon testified in front of the Senate Banking Committee. Was there one second where he felt an impulse to resign? Did anyone from the Office of the Comptroller of the Currency or the Federal Reserve, and I mean anyone from the top all the way down to the mail room, think about asking him to resign? And it’s not like the Fail Whale trades are the only sketchy activity practiced by JPMorgan Chase.
In fact, we don’t have to even look to another bank for a parallel. This investigation into Barclays got started because the US Justice Department settled with the bank for a relatively small sum, $450 million (shared with UK regulators) over manipulating the Libor. The Justice Department agreed not to prosecute the bank, because they cooperated with the investigation. They “left open the possibility of prosecuting officers or employees” of the bank, as well as the other banks involved in the scandal, which basically includes all of them. But the track record is pitiful.
Getting back to Barclays and Bob Diamond for a moment, the now ex-CEO tried to blame the scandal on the regulators, who he said looked the other way at Barclays’ fixing of the Libor.
The authorities found that Barclays reduced its LIBOR submissions to protect the reputation of the bank from negative speculation during periods of acute market stress. The unwarranted speculation regarding Barclays liquidity was as a result of its LIBOR submissions being high relative to those of other banks. At the time, Barclays opinion was that those other banks’ submissions were too low given market circumstances.
To be clear, Barclays encountered no liquidity problems through 2007 and 2008. The inaccurate speculation about potential liquidity problems in the two periods noted created a real and material risk that the bank and its shareholders would suffer damage. It was, as you will recall, a period of extraordinary turbulence and uncertainty. This raised questions for the bank about the integrity of the LIBOR setting process, and various individuals within Barclays raised issues externally about that, including with the British Bankers’ Association, Financial Services Authority, Bank of England and US Federal Reserve.
The Bank of England did not take kindly to this, saying that Diamond “did not understand” that he had been instructed to not tamper with the Libor. Diamond maintains the charge, and claims that he will reveal “embarrassing details” about his dealings with the regulators at tomorrow’s hearings, if challenged.
Incidentally, Diamond could still walk away with a severance package of between £20-£30 million, showing there are still some similarities between the US and Britain’s financial systems. But that’s based on his lack of admission of guilt, which doesn’t totally square with the “Bank of England told me it was OK” alibi.
Bloomberg’s editorial board writes that “heads should roll” at other banks over the scandal. You have to put this in the proper context. The Libor governs the borrowing rates on virtually every consumer loan made, from mortgages to student loans to credit cards, to say nothing of the $700 trillion derivatives market. Artificially rigging these rates screws pretty much everyone on the planet who uses credit. It holds the largest class action potential in global history. And Barclays, as it says in the DoJ brief, didn’t act alone. Banks were apparently fighting it out to manipulate the Libor.
There are a number of scandals that “should be the scandal” to take down the financial system. Not many have the reach of this one.