Economic Interests

If you owe the bank £100, that's your problem. If you owe the bank £100 million, that's the banks problem.

No Diamond in the rough


Bob diamond, Chief Executive of Barclays has resigned amid all the controversy over the banks role in the manipulation of market rates. Barclays along with twenty other global banks (including Lloyds, RBS and HSBC) are being accused of fixing the LIBOR and EURIBOR interest rates between 2005-2009 that affected the cost of nearly every mortgage, loan and credit card in the western world. Barclays has been the first bank to admit its role and has agreed a settlement of £290 million (30% lower after settling early) which might bring an end to Barclays punishment, but not that of the actual traders that are believed to have broken the law. The Serious Fraud Office is conducting an inquiry into the traders, while the FBI is threatening to extradite any individuals involved in the affair. The allegations against the traders are that they have manipulated rates to help save their jobs or worse their bonuses, while there are accusations that during the peak of the financial crisis rates were lowered to stop the damage to the bank’s balance sheets.  Ironically, this was what the Bank of England (a big regulator of the market) actually wanted to happen, as lower LIBOR rates meant credit would have been more easily accessible in the market.

Image summing up the key figures involved with Barclay’s fine. 

So is Bob Diamond to blame? He was not found personally guilty by the FSA (Financial Services Authority) but as the figurehead of Barclays he was always going to come under pressure from such allegations. Indeed, both Lord Turner (Chairman of FSA) and the Bank of England governor Mervyn King pushed Mr Diamond into resigning and as the two biggest regulators of the city of London, Barclays would have been foolish not to listen. Even ignoring this recent fiasco however, Bob Diamond was heavily disliked by both the public and the government. He has become the encapsulation of all that is wrong with bankers today in the public eye, while the government has clashed with him before in arguments over tax and bailouts. He has always lead Barclays close to boundaries of legality and his resignation was the right choice for Barclays if they really want to change their public image.

Adair Turner - Gordon Brown & Alistair Darling Meet US Treasury Secretary Timothy Geithner

Both Lord Turner and Sir Melvyn King, plotting the fall of the banking culture?

But Barclays weren’t the only bank involved in this debacle; they were just the first bank to come clean. RBS has already sacked 10 individuals already and I would expect more banks to face even bigger fines than that of Barclays. On top of this the regulators of the markets must surely be questioned for not noticing that rates were being manipulated, as it is their job to ensure such a thing doesn’t happen once, let alone for 4 years. The law and regulation applied to the banking industry must be toughened to ensure such actions cannot be taken again, but they must not choke off the credit market and squeeze profits too much as to have a negative effect on the economy in Britain and other countries. I have always been against the criticism of bankers as the sole reason for the financial crisis, but such allegations if proven right (as they look to be) are hard to defend and show an industry that has gotten out of control. Making unnecessarily risky decisions in lending was a wrong but forgivable action, manipulating market rates to save their jobs/bonuses was immoral and illegal, and should result in severe punishment for those involved.

So it would be unfair to single out Bob Diamond as the scapegoat for all this controversy, a lot of people are to blame and overall the whole banking culture must change. But I can’t feel sorry for a man that has made numerous mistakes in his career and still be leaving with a lucrative payoff and shares worth £22.9 million, not bad for a man reportedly worth £105 million. On top of this he still accepts little blame for his actions, arguing that such activities didn’t always happen on a daily basis (a similar argument to an abusive parent arguing he didn’t hit his kids every day).

Mr Diamond’s resignation will not be the end of this calamity, but it’s been a long time coming for one of Britain’s most hated figures.

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