Treasury: Mervyn King overstepped powers in Barclays scandal

“The Financial Services Authority has the statutory power to do what it did, which was to say ‘Bob Diamond should go.’ That’s not true of the governor of the Bank of England and I think it is regrettable he got involved,” Andrew Tyrie, Treasury Select Committee chairman, told Channel 4 News’ Sarah Smith.

The committee released its report today with findings based on a series of high-profile hearings with bankers – including Mr Diamond – after Barclays was fined a record $453m in June for manipulating the London Interbank Offered Rate known as “Libor.”

Arbitrary power

Sir Mervyn, who appeared before MPs last month, said he did not demand Mr Diamond’s resignation although he summoned Barclays’ chairman Marcus Agius and deputy Sir Michael Rake to say regulators had lost confidence in Mr Diamond. Mr Agius resigned that day followed shortly afterward by Mr Diamond.

“Whatever the merits of the action taken by the governor of the Bank of England and chairman of the FSA – and this committee has sympathy with the conclusion that they had drawn about the leadership of Barclays – the action they took has exposed implicit, and potentially arbitrary power, to force out senior figures in the financial services industry,” the report found.

As for Barclays and Mr Diamond, Mr Tyrie called the bank’s corporate structure “pretty on a piece of paper” but not terribly effective, and said Mr Diamond “lacked candour” addressing the committee. Mr Diamond should have told the committee that it was deeply involved in discussions with the FSA about Barclays culture, for example, but Mr Diamond skirted the issue.

“We’re not saying he lied,” Mr Tyrie told Channel 4 News, but “To say that he was full, frank, and candid would overdo it.”

Regulators caught napping

Few emerge unscathed. Mr Tyrie’s also directed his wrath at sleepy British regulators who allowed Libor–rigging to carry on for years until two years after their American counter-parts investigated.

“If the regulators had been more alert much earlier I’m sure they could have gotten on to it and clamped down onto it earlier. This is a regulatory failure that went on for many years, four years, and I think it is that aspect of it that is most shocking,” he said.

Mr Tyrie said he wants tighter sanctions – including stiffer fines and prison sentences to prevent similar problems. Mr Tyrie also said Britain needed to focus on the way regulators, including the Bank of England, are run and governed.

The ‘orange jumpsuit’ option

“We have to get to the point where for really serious wrongdoing people need to know there is an orange jumpsuit at the end of it,” he said.

In a statement today, Barclays stressed that it had established an independent review of its business practice.

“While we don’t expect to agree with every finding in it, we recognise that change is required not the least to restore stakeholder trust,” Barclays said in a statement.

Barclays is the first of several banks expected to be fined for rigging Libor, a rate that forms a reference point for home loans, credit cards and other financial transactions worth over $350 trillion internationally. HSBC, Royal Bank of Scotland, Lloyds and several non-UK banks are being probed in connection with possible manipulation.

The FSA said its managing director Martin Wheatley will consider the findings in his government-commissioned review of Libor due to be published in September.

The government also welcomed the report and would consider any necessary legislative changes called for by Wheatley.

Mr Diamond, Barclays’ Chairman Marcus Agius and Chief Operating Officer Jerry del Missier all quit in July.