Member Article

Update on LIBOR - Bob Diamond?s departure

So the news today is that Bob Diamond has resigned. The exact reasons are not clear but I guess it was because he and the shareholders thought that his position was becoming untenable. It may of course be because Barclays have discovered further damning evidence which would incriminate Mr Diamond.

There is little doubt that other members of the senior management team carry some responsibility and I expect to see Rick Ricci and Jerry Del Messier, the Co-Heads of Barcap, come under similar pressure over the next 24 hours and for similar exits to happen at other banks that have been implicated. It would appear that their former friends in the Government have distanced themselves and they have very few, if any, supporters left on whom to call.

It was reported yesterday that Paul Tucker from the Bank of England had discussed LIBOR in 2009, during the depths of the banking crisis, with Barclays and had made it clear just how critical it was to keep LIBOR rates low – a rise in rates indicates a perceived rise in risk sentiment or a scarcity of available credit. A low LIBOR rate tells the world that all is well and gives everyone a warm feeling.

The traders at Barclays appear to be suggesting that they viewed this discussion as a direct instruction to suppress LIBOR. It is not clear whether this defence will work for them but one thing is clear – the boundaries between the banks and the Bank of England and internally in Barclays between departments were blurred.

This overly close relationship is perhaps at the root of the problem. It encouraged personal friendship which in turn circumvented normal controls. The e-mails between the traders and those setting LIBOR do suggest a completely inappropriate level of contact and banter. The Chinese Walls policy failed utterly. Ostensibly, rules were followed and the correct procedures adhered to, but the evidence is so damning that these people cannot even claim ‘plausible denial’.

Bonuses drive behaviours and these incredibly bright people will always push the boundaries of what is allowed to make money and succeed. Without controls this will always lead to rule breaking by creep. Not one massive infringement but constant testing of the limits.

I hate to say it but we need a return to a compliance led environment with regular and thorough audits. I do not however think that the FSA has the firepower to undertake this type of monitoring. My view is that the big 4 accountancy firms should create new departments whose only role would be to monitor FSA rule compliance.

My final point is perhaps the most obvious. These highly paid traders were, and continue to be, risk takers. The only way to make them re-evaluate the risk/ reward balance is to make the chances of being caught far greater and the penalties much, much more severe – perhaps even using the Proceeds of Crime Act to confiscate assets from those found guilty.

Phil Dibbs

Managing Director

Hawkmoor Associates Limited

www.hawkmoorassociates.com

phil@hawkmoorassociates.com

www.twitter.com @hawkmoortweets

07866362333

This was posted in Bdaily's Members' News section by Phil Dibbs .