Diamond took a fall for Barclays to wake up, says BoE governor
Ex-Barclays boss Bob Diamond was to resign before the bank appreciated the extent of its role in the Libor scandal
By CFOWorld staff | CFO UK | Published 10:16, 18 July 12
The Bank of England governor had to tell Barclays that regulators had lost faith in former chief executive Bob Diamond for the bank to comprehend the extent of its self-denial over the rate-rigging scandal.
King, BoE governor since 2003, dismissed accusations on Tuesday when he appeared before the parliamentary inquiry that he was asleep at the helm while Barclays traders tried to skew the benchmark interest rate that underpins transactions worth trillions of dollars worldwide between 2005 and 2009.
He gave an insight into the flurry of meetings and telephone calls that sealed Diamond's fate on the weekend before the 3 July resignation, but dismissed the suggestion from Treasury select committee chairman Andrew Tyrie that his intervention was akin to handing someone a revolver to shoot the Barclays boss.
"I don't like these firearm analogies, and they are false," King told the parliamentary committee investigation the Libor manipulation scandal.
After the hearing Tyrie said he was still concerned that there were insufficient checks on the BoE's ability to use "arbitrary pressure" to force out senior bank executives.
King said he had consulted chancellor George Osborne before informing Barclays that regulators had lost confidence in the bank's executive management, shorthand for Diamond.
"The board of Barclays had been in something of a state of denial about the concerns of the regulators," said King, who appeared composed during his testimony.
Barclays was fined £290 million last month by US and UK authorities for manipulating the London Interbank Offered Rate, or Libor, the short-term interest rate that is supposed to show the price at which major banks are willing to lend to each other.
In testament to the seriousness of the scandal, lawmakers' regular discussion of financial stability with top financial regulators - including King, his deputy Paul Tucker and Financial Services Authority (FSA) chairman Adair Turner - turned almost entirely into a grilling over Libor.
US-born Diamond fought to save his career for several days, but swiftly changed tack after the most powerful men in the City of London decided he must go to save Barclays from further turmoil.
Once the darling of the City of London, Diamond's aggressive leadership and £17-million-pound salary appeared at odds with an era of European austerity, with bankers cast as the villains who staked the world economy for their bonuses.
"All of us involved had built up genuine concern that it is possible to sail close to the wind once. You can sail close twice or maybe even three times," King said.
"But when it gets to four or five times it becomes a regular pattern of behaviour (and you) ... have to ask questions about the navigational skills of the captain."
Osborne said the Libor scandal showed a culture of greed and irresponsibility in the City of London and on Wall Street.
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