Bank boss King tells MPs he's not to blame
Bank of England boss Mervyn King told MPs he was not to blame for failing to spot the rate-rigging scandal engulfing the industry amid mounting accusations over the central bank’s role..
In a tense Treasury Select Committee hearing, King denied the Bank put pressure on Barclays to lower its inter-bank lending rate submissions at the height of the financial crisis and rejected suggestions that he ignored warnings over Libor more than four years ago.
In a stinging attack on the Barclays board, the Bank governor said Barclays sailed “close to the wind” too often, but claimed he was unaware of deliberate wrong-doing until weeks ago when the full scale of the Barclays scandal came to light.
MPs on the cross-party committee heard how he felt Barclays was in a “state of denial” over regulatory concerns with the bank following the rate-fixing revelations.
He admitted telling Barclays chairman Marcus Agius that former chief executive Bob Diamond had lost the confidence of regulators – a discussion that prompted Mr Diamond to resign.
There were “genuine and deep” concerns among regulators over governance and a loss of confidence in Barclays’ bosses even before the scandal broke, according to King.
He said there were signs of a worrying “pattern of behaviour” over regulation at Barclays, but that its directors failed to take on board the seriousness of the concerns.
“Barclays was once a great bank. It has to create a new bank with a new culture,” he added.
It was not just Barclays that came under fire in today’s hearing, as MPs rounded on King and his deputy Paul Tucker, who was giving evidence to the committee for a second time.
MPs expressed surprise as King said he was not aware of deliberate rate-rigging until detailed reports were published two weeks ago.
His comments follow news last week that he discussed concerns over Libor – the inter-bank rate at the heart of the scandal – with New York Federal Reserve president Timothy Geithner in 2008, raising questions over why the Bank had not acted sooner to stamp out rate-fixing.
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King said he shared worries with Mr Geithner over the governance of Libor - and had solicited recommendations from the Fed Reserve – but claimed there was no evidence at the time of wrong-doing.
In at times combative questioning, MP John Mann asked King why he was “still in denial” over whether low-balling of the Libor rate “failed to be spotted”.
A defensive King stressed the Libor market was dysfunctional at the time as a result of the credit crunch.
He said: “There’s a world of difference between people saying they don’t know how to submit Libor because the market is dysfunctional and deliberate misrepresentation.”
The committee turned to Mr Tucker about Mr Geithner’s report in 2008 that flagged “deliberate misreporting” of Libor.
Mr Tucker said the report did not “set alarm bells ringing” that dishonesty was taking place but it did raise concerns about “credibility”.
King came into the debate and added: “At no stage had the New York Fed raised concerns with the Bank that they had seen wrong-doing.”
MP Andrea Leadsom asked the governor if the Bank had “got to the bottom” of how individual derivative traders fiddled Libor submissions to boost their own profits.
He replied: “We’re not an investigative body.
“It took regulators three years to find out it was being done.”
On governance at Barclays, King said it was acceptable to “sail close to the wind” once or twice but when it kept recurring “you have to ask questions about the navigational skills of the captain on the bridge”.
King and Financial Services Authority chairman Lord Turner, who appeared for a second session today, said they were surprised when Mr Agius resigned rather than Mr Diamond.
King added later: “No one believed the culture was set by the chairman but by the chief executive.”
MPs accused Mr Diamond of being “less than candid” after he played down the fraught relationship between Barclays and regulators.
Mr Diamond is facing calls to reappear before the cross-party committee.
His conversations with Mr Tucker have also been in sharp focus after suggestions that he had leant on Barclays to manipulate Libor, although this was “absolutely” rejected by Mr Tucker in an earlier appearance in front of MPs.
Mr Diamond was back in the spotlight today when email exchanges were released showing his personal congratulations on news of Mr Tucker’s promotion to deputy governor.
In emails sent on December 11, 2008, Mr Diamond wrote: “Paul, Congratulations. Well done, man. I am really, really proud of you. Talk soon. Bob.”
Mr Tucker replied: “Thanks so much Bob. You’ve been an absolute brick through this. Paul.”
Committee chairman Andrew Tyrie remarked on a “sorry tale of miscommunication” over Barclays Libor rates at the height of the financial crisis.
The Commons committee has held a series of hearings investigating the events surrounding last month’s £290m (€2.36m) settlement between Barclays and US and UK authorities for attempting to manipulate Libor between 2005 and 2009.
