28 Jun 2012

Hunting the 'dude' and 'big boy' in the Barclays scandal

No names, no precise dates, little detail, and, no wonder.

The Financial Services Authority (FSA) is conducting probes into what the FT numbers as “more than 20 banks”, who are suspected, like Barclays, of lying about their daily interest rate when they file their returns for the overall setting of the Libor interest rate – the rate of lending between banks.

At Barclays alone the FSA is aware of hundreds of names.

Their nearly three year long investigation has turned up tens of thousands of pieces of email traffic which identify not only hundreds of names inside Barclays, but the names of hundreds of traders in other institutions.

Multiply what little the FSA has revealed of its investigation into Barclays by twenty and we could be talking about thousands of names in the most prestigious banking institutions in the City of London.

But we are to be left merely with “Dude”, and “Big Boy”, as we journalists try to piece together what the FSA won’t tell us. Should not the very fact that no one is to face criminal prosecution enable the FSA to name names?

Further, as this fundamental benchmark of banking trust is shot to pieces, is there not a case for suggesting that none of these names should be allowed anywhere near the setting of the Libor ever again?

Has “too big to name, too big to prosecute” now become the epithet by which this vast banking scandal will become known?

Evidence set before the US Congress last week claimed that the very worst of recent US banking scandals – JP Morgan for one – were hatched and executed amid what was termed the “loose” regulatory world of the City of London.

 Last night I tried to explore who is responsible for the lax management of the setting of this critical Libor rate – which can affect every one of our mortgage rates and very much more.

I found that the British Bankers Association (BBA) decides which 16 banks rates will be collected for that day. They in turn outsource the job of retrieving the rates from the banks to Thomson Reuters.

The BBA then assess the mean rate and issues it as that day’s Libor rate. Thomson Reuter told me they had no responsibility whatever for assessing whether the rate filed by a bank was true or not.

So I called the BBA and spoke eventually to Angela Knight its director.

She refused to be interviewed, telling me Barclays were handling it. Barclays weren’t doing interviews either. But she did tell me that there was another committee above the BBA, which had final responsibility for the Libor rate but that it had no spokesperson.

 My research revealed that the whole setting of the rate is dependent upon “old boy” style trust.

The BBA apparently makes no attempt to establish whether banks are telling the truth and has no independent scrutineers roving around the banks to check what’s happening. In short, the setting of this critical Libor rate is completely flawed.

Of course, if anyone from the BBA or Barclays or any of the other 20 banks wants to come on to Channel 4 News tonight to argue this analysis is wrong, they’re most welcome. There, a challenge to all bankers.

 In the Libor rate we see in play the collision between “casino” and retail banking. The “dudes” gamble on the rate we poor old customers are going to be charged by the retail bank that is now fiddling interest rates with the very same casino arm. In the little that the FSA has revealed we see the casino ‘Dude’ persuading the retail “Big Boy” to lie about the true rate he’s been charging that day. This is the cancerous consequence of successive global failures by governments across the world to force the total separation of casino and retail banking. It’s a failure that successive UK governments have been particularly culpable for.

 History suggests that this separation will not be achieved; that the potentially thousands of bank and trading staff involved will go unpunished; and that no one anywhere will ever go to jail for either lying, thievery or, as the FSA puts it, “serious, widespread, and extensive misconduct”.

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