Bank chief denies leaning on Barclays to lower rates

Paul Tucker told the Treasury select committee he had never told Barclays to lower its borrowing rates and denied he was put under pressure from the government to do so.

Following the resignation of Barclays chief executive Bob Diamond as a result of the rate fixing scandal, Mr Tucker was asked about a memo Mr Diamond had written which revealed that he and the deputy governor had discussed Barclays’ borrowing submissions.

Although Mr Diamond told the committee he had not interpreted the conversation as an instruction to lower Barclays’ submissions, despite the concern of “senior Whitehall figures” about the bank’s financial viability, his colleague Jerry del Missier formed the opposite impression.

Asked if he had been instructing Mr Diamond to take action, Mr Tucker said: “Absolutely not”, adding: “We wouldn’t suggest anybody did anything wrong.”

‘Senior figures’

He said the “senior Whitehall figures” mentioned included former Downing Street chief of staff Sir Jeremy Heywood, but denied Sir Jeremy had asked him to pressurise Barclays. He also refuted suggestions that former Treasury ministers Ed Balls and Baroness Vadera had asked him to do so.

We wouldn’t suggest anybody did anything wrong. Paul Tucker, Bank of England

Barclays has been the focal point for a row over banking culture after it was fined £290 million by UK and US regulators for trying to manipulate the Libor rate, which reflects what it costs banks to borrow from one another.

Barclays’ submissions were higher than other banks because, at the heart of the credit crunch in 2008, it was paying more to borrow than other institutions, raising fears about its financial health.

Mr Tucker said he believed a bank bailout formulated by the previous government had “helped save the world”, but in 2008, “there was anxiety about it working” and his conversation with Mr Diamond reflected this.

Barclays had declined offers of government support and questions and Mr Tucker said questions were being asked about its ability to fund itself. “Was the right decision taken when Barclays didn’t take capital from the government?’ There was a degree of concern about that. There was a degree of anxiety about that.”

Emails

The emails between Mr Tucker and Bob Diamond show the deputy governor was concerned about Barclays’ financial health at a time it was manipulating its Libor submissions. In one email, Mr Tucker said he was “struck” that Barclays had issued a government-guaranteed bond with a high yield, which could be a sign that the bank was struggling to secure funding during the 2008 credit crunch.

At the Treasury committee on 4 July, the day after his resignation, Mr Diamond was asked to respond to speculation that Mr Tucker had put pressure on Barclays to alter the declarations it made as part of the process used to set the Libor inter-bank lending rate. This would have given the impression Barclays’ borrowing costs were lower than they really were.

Conflicting impressions

He told MPs he did not believe Mr Tucker was instructing him to lower Barclays’ submissions during a conversation in 2008. The latest emails, released after a freedom of information request from Labour MP John Mann, do not suggest Mr Tucker put pressure on Barclays, but they reveal that the Bank of England was worried about how much it was costing banks to borrow.

Other emails show that Sir Jeremy Heywood raised concerns over the high rate of Libor submissions in the UK, compared to the US. Sir Jeremy told Mr Tucker he was an advocate for “speeding up” the gradual decline in the Libor rate, which reflects banks’ borrowing costs.

Last week, a memo written by Mr Diamond following a conversation with Mr Tucker said the deputy governor had referred to “senior Whitehall figures” who believed Barclays’ Libor rates were too high.

Mr Diamond told the committee there were 14 or 15 other banks, including nationalised lenders such as Royal Bank of Scotland, that were in a weaker financial position than Barclays but were submitting lower Libor rates.

Penalties

On 27 June, it was revealed that Barclays had agreed to pay almost £300m to regulators in the UK and US after admitting that traders had tried to manipulate Libor.

Since then, Mr Mr Diamond and Mr del Missier have quit and Barclays Chairman Marcus Agius has announced he is also standing down.

In a speech on Monday, Labour leader Ed Miliband said the scandal vindicated his attack last year on “predatory” capitalism. He said he would like to see Britain’s top five high street banks broken up and forced to sell up to 1,000 branches.