The report on the Libor rate-fixing scandal by Martin Wheatley, of the Financial Services Authority, marks a dismal day for the City. Mr Wheatley wants responsibility for setting the inter-bank lending rate, which is used as a benchmark for trillions of financial transactions including, ultimately, mortgages, to be taken away from the British Banking Association (BBA) and given to an independent data provider or a regulated exchange.
In other words, the BBA, which set up Libor back in 1986, has been found unfit for self-regulation. Now there will be a raft of regulations to monitor the setting of the rate and it is likely to become a criminal offence to fix it. Indeed, some of those involved may yet find themselves facing charges for fraud, as Mr Wheatley has warned.
This is a direct result of bankers who provided the data on which the rate was set, manipulating the rate. This was done for bad reasons — effectively to bet on rate movements — as well as less bad ones, to make the bank in question look better at a time of instability in the markets. It has undermined the reputation of Barclays, but a number of bankers from different institutions worked together to fix the rate; some 15 major banks are being investigated. We should not forget, either, that the flaws in the system were or should have been apparent to those inside the industry for a number of years, at least since 2008, which means that the regulatory authorities — the FSA, and the Bank of England — find their own reputation undermined by the scandal.
It is a sign of failure that we are now resorting to legislation and regulation to ensure that bankers act honestly. The problem is, as this paper’s Anthony Hilton has pointed out, that since Big Bang and the revolution in financial services, it has become far more difficult for those working in the industry to behave honestly. The culture of integrity on which the reputation of individual firms with separate functions and no structural conflicts of interest relied has been undermined: “The problems came from dishonest people working in honest firms; today the problems are caused by honest people working in dishonest firms. The culture is rotten.”
We can, of course, produce a reliable interbank lending rate on the back of these changes. What we need is something much larger: a renewed culture of integrity in financial services and the City.
Labour’s dilemma
Next week’s Labour conference should be a celebratory event for Ed Miliband, mid-term through a parliament which has seen the Coalition beset by internal divisions and with the economy showing stubbornly few signs of growth. In fact, although polls put the party ahead of the Conservatives, they show that the Tories are still trusted more than Labour on managing the economy. If Mr Miliband is to have any prospect of electoral victory, it is this issue he has to address.
The Shadow Chancellor, Ed Balls, has already said that Labour, in power, would examine state spending “from scratch” to ensure that money is well spent. That is plainly sound but it raises the question why Labour in government felt no need to do so. Mr Miliband is still in the shadow of Labour’s past; he must strike a new path.
West End triumphs
There is a new regular feature in this paper: a West End page that marks the new developments and stories from the centre of London life. The West End is the hub of London’s cultural life and this paper intends to do it proud.
