Uncharted Territory

July 19, 2012

We Need Rules, not Rulers: Culture, Bankers and the Mervyn King Question

Filed under: Barclays, Business practices, Concepts, Credit crisis, Economics, LIBOR, Politics, Regulation, UK — Tim Joslin @ 4:18 pm

The aim of any self-respecting blogger is to make original points. I’m no exception, so it is time to start to wind down this thread on the Libor “scandal” (previous instalments: Saint Mervyn: King by Name, King by Nature; Bashing Barclays Badly and Battling for Mount LIBOR, the Moral High Ground), for the world has in many respects come round to my way of thinking.

Yesterday’s City a.m. egged on the politicians with the momentarily confusing headline:

MPs CALL FOR CAP ON KING’S POWER

and opening salvo:

“REGULATORS grossly overreached themselves by forcing Bob Diamond out of the top job at Barclays, top backbench MP Andrew Tyrie declared yesterday…”

And the refrain “Who will guard the guards?” echoes through the land (and I noticed has even seeped, with the rapid mutation typical of memes, into the consciousness of the brigade of the commentariat more concerned with the easy target of the G4S Olympic security fiasco).

One of our heroes, already mentioned in despatches from the front-line, Hugo Dixon, has another piece on his Reuters blog, discussing how the Governor might be reined in:

“Holding the next governor accountable will be as important as choosing one. The Bank of England was rightly given considerable independence in 1997 to prevent politicians meddling in monetary policy in order to advance their electoral interests. But the institution and its leader have slipped up on enough occasions that leaving them entirely to their own devices isn’t a good option either.

For example, King didn’t sound the alarm loudly enough during the credit bubble and was slow to act when there was a run on Northern Rock, the mortgage bank, in 2007. He then long resisted any investigations into the Bank of England’s own failings in managing the crisis. Now its hands-off approach to the Libor scandal is being revealed.

Based purely on its record, the central bank wouldn’t be receiving extra powers. However, the Conservative-led government has tried to pin the blame for the credit crunch on the previous Labour government’s policies – in particular, its decision to take away the central bank’s responsibility for banking supervision. Hence, it has become politically convenient to reverse that move.

Given this, the priority should be to enhance the Bank of England’s accountability. Under the current system, the government sets inflation targets and picks the governor. It also chooses the deputy governors and members of two committees: the monetary policy committee which sets interest rates; and the financial policy committee which will soon be responsible for financial stability. Their independent members help prevent the governor becoming too dominant.

The Bank of England also has a board, called the Court. But this has been largely ineffective. Though it has recently stepped up its scrutiny of the central bank’s executives, it is hamstrung because it rightly has no say over policy or who is the governor.

Meanwhile, parliament can call the governor and other senior officials in to give evidence. Although this is a potentially important check to the central bank’s power, MPs haven’t yet used this tool effectively.

One way of improving democratic control would be to give MPs the right to hold nomination hearings and, in extremis, reject the government’s choice for governor and other top positions. Indeed, that’s what parliamentarians want. But the government is resisting. If MPs are to change its mind, they must first show they are up to the job.”

Let’s come back to this when we’ve diagnosed the problem.

Because I still feel I haven’t made my point fully.

What the Libor affair shows us is that regulation must be mechanical, not moral.

This is a lesson we failed to learn from King’s behaviour during the financial crisis, despite his starving the UK banks of liquidity in a misguided attempt at preventing “moral hazard”; his expressed desire to stitch up Lloyds shareholders with a backroom deal to take over Northern Rock; and the actual outrageous stitch-up of Lloyds shareholders with a backroom deal to take over HBoS without adequate due diligence, to which he must at least have given a nod.

My first post on the Libor-fiddling topic touched on the subject of culture:

“The excuse for laying into Diamond seems to be some problem with the ‘culture’ at Barclays. Is it any different to that at any other investment bank? Doesn’t the ‘culture’ in any occupation go with the turf? Presumably they don’t want traders to behave like, say, Premier League footballers, or Hollywood actors. Something less flash perhaps: doctors, say or IT guys. But would they still be able to do the job? These occupations surely require quite different qualities and aptitudes. Maybe something a little more sales oriented, perhaps, then: used car dealers or estate agents. Or politicians! But are these professions more or less honest than investment banking? I’m stuck. Perhaps our politicians could spell out exactly how they want investment bankers to behave.”

The aim of yesterday’s post was to develop the idea that the “scandal” is being treated as a moral issue. There’s something “bad” about Barclays, we’re told, and the Bank of England Governor, with ex officio moral authority, judges it comes from the top and fires the Chief Executive.

But what is “culture”?

This is what an editorial, “Culture shock”, in yesterday’s FT (I’m getting my full £2.50 worth!) suggested:

“Culture is not a fluffy chimera of business how-to books or self-congratulatory corporate reports. Culture, real and unnoticed as the air we breathe, is the web of unspoken mutual understandings that frame what people expect from others and think is expected of them. This web shapes the fortunes of any organisation or social group. Bob Diamond, Barclays’ disgraced ex-chief executive, knew this; he once declared ‘the evidence of culture is how people behave when no one is watching’. He was right…

… [non sequiturs omitted]

A culture cannot be heavy-handedly ‘managed’ by legislation or compliance rules alone. It must be more subtly cultivated and tended.”

OK, we can all agree that behaviour within an organisation is determined by executive example and communications; organisational stories; dress code; building architecture, location and decoration; the presence or absence of game rooms; and so on and so forth – as well as the nature and demands of the work, as I previously stressed. But within all that complexity, all we’re really concerned about here is that rules are followed. There may be indirect ways of achieving this goal by means of some kind of arcane cultural alchemy – would Fairtrade coffee, beanbags and dress-down days work? who knows? – but most people would consider it sensible to simply focus on the outcome.

Obviously the “rules alone” are not enough. There also needs to be an expectation of enforcement. A rooting out of dishonesty. And maybe by spending £100m on investigating Libor-fixing rather than, say, carrying out some “routine email housekeeping” (didn’t something like that come up with News International?), Barclays have shown a willingness to steer their internal culture in the direction of obeying the rules.

With this unsatisfactory view of “culture” in mind, let’s consider the crucial question for the future, the “Mervyn King Question”: Is it possible for the Governor to both exercise moral authority AND for there to be effective oversight of the role?

No, of course not. The Governor can’t both exercise his judgement AND explain the detailed reasons for a decision. If he can explain the precise reasons to whoever he, the Governor is accountable, for example those for firing Bob Diamond (“he broke rule 44b clause 3, which is a sacking offence”), then by definition he isn’t exercising judgement.

The Mervyn King Question suggests then that we have to decide which way we jump. Do we want, in the modern world, to trust the personal judgement of an unelected official, or do we want a team expert in banking regulation to ensure that the rules and sanctions for breaking them are clear to banks and that bank behaviour is monitored and the rules enforced?

Do we want a ruler or do we want rules?

The traditional role of the Governor of the Bank of England was one of arbitrary power. This is where Mervyn King believes we should return. No wonder the job of Governor is so coveted.

But there’s a different path. Surely we’d be better off rejecting the moral approach and focusing on the technical aspects of the role of Governor of the Bank of England?

Let’s take as an example the critical case, where it all started to go wrong, when I first became concerned about the outlook of Mervyn King. Instead of arbitrarily allowing banks (such as Northern Rock) to fail to try to prevent “moral hazard” shouldn’t the Bank have made the rules absolutely clear in advance? NR would not, I’m sure, have relied on interbank funding had it’s executives known that funding may be allowed to dry up and they would have to retire in disgrace.

I would suggest that the Bank start by announcing that it will not allow any Bank to fail due to systemic problems (as opposed to Baring-style sudden catastrophic losses), but will provide liquidity as lender of last resort. What constitutes “systemic” would need clear definition, as would the cost of such support which would include a requirement for banks to raise capital. We have to recognise that we can never allow banks to fail under stress – such failures simply cascade through the economy – and dismiss the nonsense that such a backstop is some kind of subsidy for institutions that are “too big to fail”. This is like saying that Tesco is subsidised because the State provides resources for the prosecution and punishment of shop-lifters.

The Libor-fiddling that mattered – that before the financial crisis – was arguably criminality, pure and simple. It was orchestrated by a small group of traders who knew they were breaking the rules, as their emails make clear: “I would prefer this not be in any book!”, “if you breathe a word of this I’m not telling you anything else” and so on. It became a “scandal” because politicians – principally Ed Miliband – immediately made hay. But business isn’t politics. It’s not primarily about character (neither should politics be, of course, but the UK political process is becoming ever more Presidential and less policy-driven). The danger of allowing the political process to drive banking or other business regulation is that there is no satisfactory answer to the Mervyn King question. Even were we to confer moral authority on the Governor as we do the Prime Minister (who is not only elected, but easier to get rid of than the Governor – men in grey suits and all that), business is not hierarchical like government. It is fundamentally about choice and competition. Differences in outlook are necessary.

Dismissing company bosses in an attempt to change the corporate “culture” would seem to necessarily worsen group-think. If all our banks had been the same perhaps they’d all be part owned by the State now. Perhaps they’d all been like HBoS. As it is, Barclays managed to recapitalise without calling on government funds, Santander expanded and the “elephant” HSBC simply marched on barely affected. Diversity matters.

At worst, of course, there is no difference between condemning a bank’s culture and firing the boss simply because you don’t like the cut of his jib.

I promised I’d return to the points Hugo Dixon made. We may well need some or all of the means Dixon suggests for holding the Governor to account. But before we can do that, Parliament needs to step back and look at how the Governor’s role is defined. They need to review his Terms of Reference. Make sure he’s clear what the rules are.

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July 18, 2012

Battling for Mount LIBOR, the Moral High Ground

Filed under: Barclays, Business practices, Credit crisis, Economics, FT, LIBOR, Media, Politics, Regulation, UK — Tim Joslin @ 4:17 pm

If you’re going to watch one film about the Vietnam War then I recommend Hamburger Hill. The point of the film for me at least (other discussions of the movie fail to stress this point) was that the battle was not about the strategic value of the eponymous high ground. Rather, both sides were trying to demonstrate their determination.

Catching up with an episode of Mock the Week last evening, I chanced on a rant by the one I would refer to as the tall, skinny panelist with dark curly hair, had the internet not been invented purely to allow me to remind myself that his name is, in fact, Chris Addison. The comic – who I always feel differs from his generally less hirsute colleagues in looking less like a funny-man, and more like a particularly tedious sociology lecturer – observed at some length that everyone is furious about the Libor “scandal”, even though most of them they don’t have a clue what it’s about. Well observed, in my opinion.

My first post on the Libor topic attempted to convey this moral dimension – and the battle for authority – with its title, Saint Mervyn: King by Name, King by Nature, but perhaps I wandered slightly off the theme, in favour of providing a narrative.

It seems clear after Mervyn King’s appearance before the Treasury Select Committee yesterday, though, that the Governor chose the Libor issue as the ground on which to continue a war with the City, and in particular with Bob Diamond. We’re told that Diamond’s sacking was not just about the Libor issue, but about Barclays’ “culture”, and a “pattern of behaviour”, as discussed in correspondence between Lord Turner, head of the FSA and Marcus Agius, Barclays’ Chairman. It seems clear that nothing new had emerged to implicate Bob Diamond personally and that King therefore simply seized the opportunity to get rid of him. Here’s how the Guardian puts it in an editorial:

“And why exactly was Mr Diamond pushed out? Not for any direct involvement in the Libor scandal but, in the words of Mr King yesterday: ‘They [the bank] have been sailing too close to the wind across a wide number of areas.’ No actual infraction; just a general sense of having gone too far for too long. … The impression left is of rather rough justice.”

Indeed, I’m reminded, the Libor scandal itself is nothing new. Although I now seem to have run out of free views of FT.com pages (so pushed the boat out and bought a copy this morning – £2.50, they’re having a laugh!), I did manage to access an old story that I’d bookmarked:

Banks served subpoenas in Libor case

By Brooke Masters and Patrick Jenkins in London and Justin Baer in New York

Regulators probing alleged manipulation of a key interbank lending rate have focused their demands for information and interviews on five global banks, according to people familiar with the investigation.

UBS, Bank of America, Citigroup and Barclays have received subpoenas from US regulators probing the setting of the London interbank offered rate, or Libor, for US dollars between 2006 and 2008. …”

Who says bookmarking thousands of interesting news stories is a waste of time, eh?

And this one FT story contained links to pieces in the FT’s Lex and Lombard columns, as well as another story the previous day:

“Big banks investigated over Libor

By Brooke Masters and Patrick Jenkins in London and Justin Baer in New York

Regulators in the US, Japan and UK are investigating whether some of the biggest banks conspired to ‘manipulate’ the benchmark interest rate used to calculate the cost of billions of dollars of debt.

The investigation centres on the panel of 16 banks that help the British Bankers’ Association set the London interbank offered rate, or Libor – the estimated cost of borrowing for banks between each other.

In particular, the investigation was looking at how Libor was set for US dollars during 2006 to 2008, immediately before and during the financial crisis, people familiar with the probes said.

The probe came to light on Tuesday when the Swiss bank UBS disclosed in its annual report that it had received subpoenas from three US agencies and an information demand from the Japanese Financial Supervisory Agency. …”

When were these stories published? 15th and 16th March, 2011.

Now, I may not be willing to fork out for an FT subscription, but I’m sure Bob Diamond and Mervyn King are. In fact, they probably receive the “Pink’un” as a perk of their jobs.

Regular readers will know that I’m very guarded in anything resembling an accusation that I may occasionally make on here, but it does indeed beggar belief that everyone involved is claiming to have been unaware of the brewing Libor scandal – a matter relevant to banks’ annual company reports – until the last few weeks, since even I knew about it, and the Libor-setting process was, until this month, of course, of somewhat peripheral interest to me, and even that overstates my curiosity. My £2.50 copy of the FT quotes Mervyn King on the front page as saying:

“The first I knew of any alleged wrongdoing was when the reports came out two weeks ago.”

Doesn’t the Governor read the FT? If not, why not?

To the extent I worried about it, I assumed the likelihood of fines over Libor-rigging was “in the price” of bank shares (we must be at the point where banks start assuming a few hundred mill in fines each year as part of their business plans, and therefore product-pricing). Active investors must have also thought bank share prices took account of the Libor investigation, as otherwise they would have sold the banks, short if necessary.

As I mentioned yesterday, Libor manipulation – much of which occurred during the financial crisis when the numbers were guesses anyway – would seem to be less serious than HSBC’s desultory attitude towards controls to prevent money-laundering. (Rather predictably, HSBC have seemingly gone overnight from one extreme to the other: I have recently had an HSBC account, to which I log in online 2 or 3 times a month, locked down – “suspended” so I can’t even pay into it – for no apparent reason).

No, Libor has been chosen as a battleground.

Sacking Bob Diamond makes no sense otherwise. Barclays report that they spent £100m “to ensure no stone has been left unturned” in their internal investigation and have settled early with the regulators. Since this has not been enough to keep the top guys in their jobs, perhaps their successors will adopt a different strategy next time!

And, like a misjudged military intervention, the battle threatens to turn into a war, consuming its instigators.

Mervyn King has clearly over-stepped his authority and threatened his legacy: “It is the BoE that finds itself most directly in the line of fire”, writes the FT’s Chris Giles. Not only are more and more awkward questions being asked in the UK, the regulators across the Pond are now playing holier than thou. That FT front-page lead (taking precedence over a report of the HSBC compliance chief quitting during a US Senate hearing!) is titled: “Bernanke calls Libor a ‘flawed’ benchmark”, and observes that “Mr Bernanke’s description of how the US reacted [earlier, in 2007] to claims that banks were understating the rates at which they could borrow contrasted with testimony yesterday from Sir Mervyn King.”

Mervyn King’s “pattern of behaviour” suggests to me that he may have been bullied at school. If not, I rather suspect he’s now going to find out what it’s like at his regular central-banker get-togethers.

July 17, 2012

Bashing Barclays Badly

Filed under: Barclays, BBC, Business practices, Credit crisis, Economics, LIBOR, Media, Politics, Regulation — Tim Joslin @ 6:10 pm

I noted yesterday that I’d set the recorder to catch Jerry del Messier’s appearance before the Treasury Select Committee. Sadly, when I got home I found I had filled my hard disc with several hours of BBC News 24, which contained no more than 7 minutes of coverage, including “analysis” of the session. Clearly the BBC is not so bothered to get to the heart of the matter.

Never mind, I watched a bit on Parliament TV this morning, after warming up with some live coverage (thanks BBC) of Mervyn King’s appearance, flanked by his deputies and Adair Turner, like a bunch of schoolboys caught reading top-shelf magazines behind the bike-sheds.

Unlike the BBC, the MPs are trying gamely, but you really have to wonder if the process works properly. Maybe just two or three of them should ask all the questions, to avoid lines of questioning being dropped just as it gets interesting, as keeps happening when it’s another Member’s turn for a few minutes in the limelight.

Still, I wasn’t disappointed by del Messier’s grilling (you missed broadcasting some great live TV, BBC), but a couple of points seemed to pass the MPs by.

First, it finally became clear that Bob Diamond’s infamous memo was sent the day after the phone call it records, as suggested by the timestamp. Here’s the full memo:

“From: Diamond, Bob: Barclays Capital

Sent: 10/30/2008 14:19:54

To: Varley, John: Barclays PLC

Cc: del Missier, Jerry: Barclays Capital (NYK)

Subject: File note: Bank of England call

Fyi

File Note: Call to RED [Diamond] from Paul Tucker, Bank of England

Date: 29th October 2008

Further to our last call, Mr Tucker reiterated that he had received calls from a number of senior figures within Whitehall to question why Barclays was always toward the top end of the Libor pricing. His response was ‘you have to pay what you have to pay’. I asked if he could relay the reality, that not all banks were providing quotes at the levels that represented real transactions, his response ‘oh, that would be worse’.

I explained again our market rate driven policy and that it had recently meant that we appeared in the top quartile and on occasion the top decile of the pricing. Equally I noted that we continued to see others in the market posting rates at levels that were not representative of where they would actually undertake business. This latter point has on occasion pushed us higher than would otherwise appear to be the case. In fact, we are not having to ‘pay up’ for money at all.

Mr Tucker stated the levels of calls he was receiving from Whitehall were ‘senior’ and that while he was certain we did not need advice, that it did not always need to be the case that we appeared as high as we have recently.

RED [Diamond]”

I was surprised, to say the least, that none of the Select Committee noticed this delay the first time round when they might have asked Diamond what he did in the intervening time (he phoned del Messier, it turns out, though I recollect Diamond didn’t recollect this). Diamond, I remember, testified at some length that he was concerned that Barclays might appear weak whilst trying to finalise its life-saving Middle East share sale. Surely he would not have waited a day before relaying the message from Tucker.

Second, the MPs are completely failing to distinguish between different periods of Libor fiddling. From 2005-7 traders in Barclays and elsewhere were persuading the rate-setters to submit a Barclays Libor rate in order to try to make money. This is appalling – see the FSA’s report (pdf) for the salacious details. But after 2007 Libor wasn’t working. Interbank lending wasn’t happening. The FSA write:

“In the latter half of 2007 and throughout 2008, lending in London for maturities longer than overnight came to a virtual standstill and there was extreme dislocation in global money markets.”

So the banks were just making a judgement as to what they might be able to borrow at. Since it was just a guess, it stands to reason that if they were guessing higher than every other bank they may as well guess lower. “Low-balling” Libor was done for an entirely different reason from mid 2007 on – top-down from management, rather than bottom-up by traders – so as not to appear weak.

What strikes me is that by releasing Diamond’s file note, Barclays have successfully steered the MPs away from the criminality and into the increasingly murky area of Libor-setting during the financial crisis. Damage-limitation PR, basically, though that’s fairly moot from Diamond’s point of view right now, but the MPs really should have tried to distinguish between the two periods. The symptoms may be similar – dodgy Libor submissions – but the causes are different. Both hayfever and a cold might cause you to sneeze, but you’d treat the two conditions quite differently.

The Committee session with Mervyn King this morning was quite different. The Governor didn’t seem to realise he was in the dock. He was shirty with his inquisitors, and even tried to talk over one. And Andrew Tyrie seemed genuinely cross. He shared the concerns I expressed yesterday. Trouble is, dealing with King is like having a 6 foot shark on a line intended for mackerel. He seems to be pulling in several different directions at once. One minute he’s the regulator (on the grounds that the function is being handed back to the BoE), the next he’s not. One minute Diamond is being fired because of the outcry over Libor, the next it’s to do with a letter from the FSA (the Guardian has posted it here).

I hope and expect Tyrie’s report to be critical of the Governor, and the governance of the Bank of England.

Here are a couple of questions to think about:
– why doesn’t the Bank of England have separate Chairman (and Board) and Chief Executive roles? The Governor would then be – as the Chief Exec – at least accountable to someone.
– if this is what happens when they don’t like the “culture” (or just the CEO) at a bank/a few corners are cut on a poorly defined technical procedures during a once in a lifetime crisis (which all the other banks might have been doing as well)/a few traders find a new way to cheat a poorly-defined system (which might have been happening at all the banks) – delete as applicable, depending why you think Diamond was sacked – then what are they going to do when a bank does something really bad? Like, for example, allowing widespread money-laundering, as HSBC seems to have done.

July 16, 2012

Saint Mervyn: King by Name, King by Nature

I’ve been following the Libor scandal with considerable interest. The former Chief Operating Officer of Barclays Jerry del Messier should be settling into his chair before the UK House of Commons Treasury Select Committee as I write these words – don’t worry, I’ve set the recorder for the BBC News Channel.

Perhaps we’ll find out the answer to why Jerry del Messier was cleared of rigging Libor on the grounds that, according to Barclays’ briefing note (pdf) issued ahead of Bob Diamond’s appearance before the Select Committee he:

“…concluded that an instruction had been passed down from the Bank of England not to keep LIBORs so high. He passed down an instruction to that effect to the submitters.”

on the basis of Diamond’s infamous note to file which suggested that Paul Tucker, Deputy Governer of the Bank of England had advised that:

“…while he was certain we did not need advice, that it did not always need to be the case that we appeared as high as we have recently.”

The mysteriousness of it all arises because Barclays was already lowering its Libor submissions. They admit that during the period Sept 2007 – April 2008:

“Less senior managers gave instructions to Barclays submitters to lower their LIBOR submissions. The origin of these instructions is not clear.”

You’d think that when Jerry del Messier told his rate-setters to “lowball”, someone might have mentioned that they were already doing it!

I really like the point in Barclays memo that:

“[del Messier’s] instruction became redundant after a few days as liquidity flowed back into the market.”

“Became” redundant? His instruction was already redundant!

It’s not del Messier’s behaviour that really bothers me about the whole affair. It seems all the banks were at it, and Barclays may not have been the worst culprit. Barclays is just the first to settle. And the only logical explanation I can think of for George Osborne’s strange claim that Libor lowballing was sanctioned by Balls, Brown and Vadera is that it was an open secret in the City.

After all, no-one would borrow at a rate inflated by concerns that the banks might fail, as opposed to one simply reflecting risk, the base rate and the balance between supply and demand for money. Libor simply doesn’t work in those circumstances. The authorities would be obliged to address the problem any way they could in order to save the economy.

I hate to see public bullying. It seems our politicians – and many in the media and, notably, Mervyn King – just don’t like Bob Diamond. What will they do when they run out of obvious scapegoats? The excuse for laying into Diamond seems to be some problem with the “culture” at Barclays. Is it any different to that at any other investment bank? Doesn’t the “culture” in any occupation go with the turf? Presumably they don’t want traders to behave like, say, Premier League footballers, or Hollywood actors. Something less flash perhaps: doctors, say or IT guys. But would they still be able to do the job? These occupations surely require quite different qualities and aptitudes. Maybe something a little more sales oriented, perhaps, then: used car dealers or estate agents. Or politicians! But are these professions more or less honest than investment banking? I’m stuck. Perhaps our politicians could spell out exactly how they want investment bankers to behave.

Or perhaps Mervyn King could tell us. After all, he’s the one who fired Bob Diamond – never mind that the regulatory investigation is far from complete. Is he going to fire the heads of a dozen other banks?

Never mind that the real reason seems to be some problem with Barclays “culture”, it’s not actually Mervyn King’s job to sack the Chief Executives of banks. Or anyone else employed by a bank for that reason. And even if it was King’s job, he would be obliged to follow due process.

Diamond could be forced to step down if the Financial Services Authority found he was not a “fit and proper” person. Which didn’t happen.

Or if he lost the confidence of Barclays’ shareholders. He might have done, I suppose, but that’s not why he went.

No, Marcus Agius (Barclays Chairman and ex-Chairman) explained what happened:

“Agius told MPs that the chief executive had quit ‘because it became clear that he lost the support of his regulators’ just 48 hours before the American-born Diamond was scheduled to appear before the committee.

Agius described how he had been summoned, along with Sir Michael Rake, the most senior non-executive director on the Barclays board, to see King shortly after Agius’s resignation had been announced a week ago on Monday.

‘We had a conversation in which he said that Bob Diamond no longer enjoyed the support of his regulators,’ said Agius, who then had to hold an emergency board meeting by telephone of non-executive directors to decide how to proceed. He admitted to being shocked as concerns had not been raised when the £290m fine for attempting to manipulate Libor rigging emerged five days earlier.

Agius said he and Rake went to Diamond’s home on the Monday evening. Diamond – who had insisted to MPs last week that he did not know about any regulatory pressures – ‘was not in a good place’, said Agius. He said that the conversation was ‘not long’ and that Diamond had asked for time to talk to his family.

‘I left his [Diamond’s] house confident he would resign, if he hadn’t done so already,’ Agius said.”

Staggering.

I’m surprised there’s not been more outcry at such authoritarian behaviour by the Governor of the Bank of England, who is, after all, just a public official.

One exception is Philip Inman who provides some background in a Guardian piece titled “How Mervyn King Finally Got Bob Diamond.”

“…from the moment the credit crunch began to wreck Northern Rock’s finances in the summer of 2007, the grammar-school boy from Wolverhampton, whose father was a railway worker and then a geography teacher, was ready with his analysis. King said most of the huge debts accumulated by banks could be tied to the huge bonuses executives received as reward for their lending.

In meetings with regulators and then chancellor Alistair Darling, Diamond, then head of Barclays Capital, and his investment banking peers were seen as a bunch of amoral, greedy traders. Darling relates in his diaries how King would counsel against providing rescue funds that perpetuated a risk-taking culture.

But it was Diamond, one of nine children and also the son of a teacher, who made it public and personal. At a time when most bankers were busy trying to prevent their institutions going bust, he broke cover to give an interview in a Sunday newspaper. In an analysis of central banks’ actions in combating the credit squeeze, Diamond notably excluded the Bank of England from praise.

He said providing short-term cash was the job of a central bank. ‘For the recovery to continue we need to find more ways to get liquidity into the short end of the curve,’ he said. ‘That’s down to confidence, and that’s down to the central banks. We’ve seen thoughtful moves by the [US Federal Reserve] and the [European Central Bank].’

The Bank of England saw the interview as a direct attack on its handling of the crisis. King’s response was to embark on a series of speeches and interviews in which he openly decried the emergence of a ‘small elite’ that agreed to pay itself bonuses in good times and bad.”

So petty. Maybe Mervyn is touchy – I think Diamond was right. Perhaps, if King had behaved more like other central bankers, we’d have a healthier banking industry today, and Ed Miliband wouldn’t be threatening to break up the survivors to create more competition. Don’t forget that Alliance & Leicester, Bradford & Bingley and Northern Rock have all disappeared from our high streets.

What’s more, blaming the financial crisis on bank bonuses is simplistic to say the least.

And perhaps central bankers should have seen the housing bubble warning signs a bit earlier.

Another commentator who hasn’t let the matter pass is Hugo Dixon who suggests at Reuter’s that the “BoE governor’s arm-twisting raises tricky issues”:

“…on whose behalf exactly was King speaking? The BoE, after all, is not responsible for supervising banks – and won’t be until next year. That’s still the job of the Financial Services Authority. If King wasn’t speaking for the FSA too, he was arguably stepping beyond his authority.

On the other hand, if the BoE governor was speaking on the FSA’s behalf, why didn’t the regulator itself deliver the message that Diamond should go? And why too did the FSA apparently change its position? After all, the regulator had only just agreed a settlement with Barclays over the Libor rate-fixing scandal. If it had wanted Diamond to go, that would have been the moment to say so.

A further question is how exactly the regulators managed to twist Barclays’ arm. If the FSA doesn’t support a bank director in his role, the current mechanism for removing the executive is to deem him no longer ‘fit and proper’. But it seems hard to argue that Diamond didn’t meet that test. After all, the lengthy investigation into the Libor scandal did not criticise him personally.

Some people will no doubt say it is good that Diamond has gone and it doesn’t really matter how that was engineered. But methods used in difficult situations can easily become precedents.

The BoE is about to become even more powerful next year when it takes over banking supervision. It is important that it operates in a transparent and accountable fashion.”

Quite.

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