Challenge to deliver banking reform
Saturday, September 29, 2012
Financial Services Authority managing director Martin Wheatley's savage indictment of the shameless greed and complacency that spawned the Libor scandal leaves no room for misunderstanding.
Yesterday, Mr Wheatley unceremoniously dissected the interest-rate rigging scandal that led to the exit of Barclays boss Bob Diamond and delivered an eye-wateringly candid verdict.
The British public deserved absolutely nothing less. The Libor debacle was so corrosive that it undermined the very fabric of the financial system. Until the scandal broke, few of us had heard of Libor let alone understood its significance.
Now we know all too well that it is a mechanism that lies at the very heart of our global banking system. We know now that to take outrageous liberties with this critical piece of financial apparatus is to unhinge the whole system. It requires breathtaking recklessness to do such a thing – but clearly, as we now know, there were plenty of bankers, experienced ones at that, who were more than willing to play fast and loose in this way. Most of them clearly knew better but were too consumed by greed and opportunism to steer clear of temptation.
Every sane person will surely applaud Mr Wheatley's call for stiff penalties for Libor abusers, including prison terms and large fines. The system and the individuals participating in it are to be brought under the control of the FSA, Mr Wheatley's organisation. This too, seems eminently sensible and we trust that the Government will smooth the passage of these reforms into the law books.
But there are further questions that merit answers from the financiers and the politicians.
One is this: why was the FSA unable to identify the looming disaster, given that it was surely clear to the authority that Libor could not be left unregulated?
A second question is this: why did the Bank of England fail to pursue concerns? Its position as a bastion of probity in our financial system was tarnished by the banking crisis of 2088 and its aftermath. The Libor scandal damages it further.
And thirdly, perhaps the most challenging question is this: given its shaky recent record, can the FSA guarantee Libor is safe in its hands?
One thing is certain. the banking system is there for its customers, not for the bankers themselves.
Yesterday, Mr Wheatley unceremoniously dissected the interest-rate rigging scandal that led to the exit of Barclays boss Bob Diamond and delivered an eye-wateringly candid verdict.
The British public deserved absolutely nothing less. The Libor debacle was so corrosive that it undermined the very fabric of the financial system. Until the scandal broke, few of us had heard of Libor let alone understood its significance.
Now we know all too well that it is a mechanism that lies at the very heart of our global banking system. We know now that to take outrageous liberties with this critical piece of financial apparatus is to unhinge the whole system. It requires breathtaking recklessness to do such a thing – but clearly, as we now know, there were plenty of bankers, experienced ones at that, who were more than willing to play fast and loose in this way. Most of them clearly knew better but were too consumed by greed and opportunism to steer clear of temptation.
Every sane person will surely applaud Mr Wheatley's call for stiff penalties for Libor abusers, including prison terms and large fines. The system and the individuals participating in it are to be brought under the control of the FSA, Mr Wheatley's organisation. This too, seems eminently sensible and we trust that the Government will smooth the passage of these reforms into the law books.
But there are further questions that merit answers from the financiers and the politicians.
One is this: why was the FSA unable to identify the looming disaster, given that it was surely clear to the authority that Libor could not be left unregulated?
A second question is this: why did the Bank of England fail to pursue concerns? Its position as a bastion of probity in our financial system was tarnished by the banking crisis of 2088 and its aftermath. The Libor scandal damages it further.
And thirdly, perhaps the most challenging question is this: given its shaky recent record, can the FSA guarantee Libor is safe in its hands?
One thing is certain. the banking system is there for its customers, not for the bankers themselves.
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