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Diamonds are forever …

I wrote a brief summary last Friday about a wholesale need to change the industry and thought that was it … it’s not. I need to write more about this heap of crap the UK banking industry has uncovered (and not just here).

First, there’s the question of fixing LIBOR rates.  This has been exposed in depth by the UK and US investigations of Barclays Bank which resulted in near half a billion dollar fines last Friday.

Fair dues and now Deutsche, Citi, Bank of America, RBS and the rest are to follow with their own fez ups.


Second, there’s the question of whether Bob Diamond, the CEO of Barclays Bank needs to step down.

According to the public, as tracked via twitter, this is an absolute yes …

According to analysts, politicians and others, it’s a maybe …

And, according to me, it’s a no …

Why should Bob Diamond stay?

Because there’s no one to replace him.

A mistake maybe, but no-one has his knowledge of the banks’ extensive complexity, operations and dealings, some of which were dirty. 

Hence, if the bank needs to unwind these positions, he’s the man to do it.

Did he create these positions?


Can he unwind them and fast?


That will be his making.

Another part of what will be his making is that the other banks are also as guilty, if not more so.  RBS, Lloyds and the others who set LIBOR and EURIBOR interest rates are all being investigated, and will no doubt all be found liable too.

As Reuters note:

In late 2007, Barclays told the UK Financial Services Authority and the British Bankers’ Association, the trade body under whose auspices Libor is set, of its concerns that rivals were setting rates too low.

Months later, a senior Barclays treasury manager called the BBA and warned them that rates were not accurate, but that Barclays was not the worst offender.

“We’re clean, but we’re dirty clean, rather than clean-clean,” he said.

“No-one’s clean-clean,” the BBA representative responded.

The fact that Barclays co-operated and actually raised the issue, will also be Diamond’s making.

Finally, the shareholders and board of Barclays bank are behind Bob Diamond, so he’ll stay.  Instead the current bank Chair Marcus Agius, who is already likely to leave the bank, will step down and be their sacrificial lamb.


That leaves this whole stinking heap of shi’ite of banking folks who have abused the system.

As mentioned on Friday, it is everyone from bank heads to front line staff and will be debated long and hard.

In fact, after my Friday comments, not only did the Bank of England’s Governor Mervyn King come out and say the same thing:

“That goes to both the culture in the banking industry and to the structure of the banking industry from excessive levels of compensation, shoddy treatment of customers, to deceitful manipulation of one of the most important interest rates and now this morning to news of yet another mis-selling scandal.  We can see we need a real change in the culture of the industry, and that will require two things – one is leadership of an unusually high order and changes to the structure of the industry.”

But soon after I spotted this headline:

Former Lloyds head of fraud and security Jessica Harper charged over £2.5m fraud

Add this to all the other ones (see Friday) and you can only say that THIS INDUSTRY HAS BEEN FUNDAMENTALLY CORRUPTED AND IS BROKEN.

It will change of course, but what will change.

Vince Cable – speaker at the Financial Services Club in 2009 – says that shareholders need to be more active in bank governance.

There’s more to it than this: bank management need to be more accountable; customers need more protection; regulators need more powers; and yes, sure, shareholders need more activism.

The usual requirements after an industry meltdown.

The core of all of these changes needs to look at one key area however: the cure, not the antidote.

The UK’s Vickers reforms and the US Volcker rule are antidotes to this toxic banking culture but not cure.  Now we need to work out where did all of this came from.

IMHO, it came from the repeal of Glass-Steagall with Gramm-Leach-Bliley http://en.wikipedia.org/wiki/Gramm%E2%80%93Leach%E2%80%93Bliley_Act in 1999,

This Act motivated the conversion of market maker partnerships to fully incorporated broker firms.

The result was that the Morgan Stanley’s and Goldman Sach’s created an investment world that no longer tied partner’s money to risk but just allowed unaccountable risks to be played without anyone’s personal wealth at stake.  Just the customers.

There’s the core issue.

Banking needs to go back to basics and kick the rogue traders and corrupt broker out of the room.

“What is robbing a bank compared with founding a bank?”   Bertolt Brecht, The Threepenny Opera, 1928


About Chris M Skinner

Chris M Skinner
Chris Skinner is best known as an independent commentator on the financial markets through his blog, the Finanser.com, as author of the bestselling book Digital Bank, and Chair of the European networking forum the Financial Services Club. He has been voted one of the most influential people in banking by The Financial Brand (as well as one of the best blogs), a FinTech Titan (Next Bank), one of the Fintech Leaders you need to follow (City AM, Deluxe and Jax Finance), as well as one of the Top 40 most influential people in financial technology by the Wall Street Journal’s Financial News. To learn more click here...

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  1. The Libor calculation discounts the highest and lowest quotes before taking the median of the rest if my memory serves – therefore Barclays not working alone.
    Not sure what positions you expect to unwind.
    Glass-Steagall would not have stopped the Lehman collapse.
    Vickers / Volcker great for the lawyers. Any law that takes 300+ pages to define (as Volcker does) is never going to work.
    The UK 1970 banks that collapsed did not cause a major crisis. A main reason was that we had lots of banks. The best solution would be to force a way back to that situation. There are of course many reasons that would be complex to do – but it could be a long term target worked towards. Even the US (which the UK tends to slavishly copy) has limits to retail deposit market share per bank though its own structure is far from perfect.

  2. I think you are being picky Andy
    Barclays have many issues, not just LIBOR as mentioned on Friday.
    I did not say Glass-Steagall would have prevented the Lehmans collapse, but that its repeal created the bonus culture madness of unaccountable risk.
    If you think we can solve everything by just avoiding banks being too big … possibly.

  3. It would be interesting to do a trawl through documents of the FSA, HM Treasury and Bank of England since 2007 to see what reference is made to the setting of LIBOR as a threat to the stability of the banking system given the enormous contingent derivative liabilities that were /are linked to LIBOR ($360 trillion currently) and how this is best managed.
    The latest (June ) Bank of England Financial Stability Report (FSR) makes no mention of LIBOR as a threat to the global financial system especially to the position of London and UK banks yet it is the key daily market fix.
    Given this it would seem a considerable threat to financial stability as reflected in the subsequent media reaction to the Barclays fine for rate manipulation and the call by the governor of the Bank of England for a complete LIBOR revamp based on actual transactions.
    Already the seeds of another crisis are being sown as major bank funding sources become ever more essential. In a detailed section on OTC risks in the FSR – and this really is a worrying read – the FSR states ‘The growth of collateral swaps is likely to further complicate risks and crisis management’
    Given the pressures and complexities on global banks the industry needs leaders who understand the banking business in a holistic sense and especially the underlying products and their impact.
    Sadly I feel this is where we have been let down by the business schools who in the past narrowly focussed on creating silo based investment bankers but at what cost?

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