Five things you need to know about the huge, scathing report into Libor manipulation

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Bob loved Barclays, Barclays loved Bob

Bob loved Barclays, Barclays loved Bob (Photo credit: World Economic Forum)

This weekend, you can’t have failed to notice the publication of a huge 122-page report into the Libor rate fixing scandal published by the Treasury Select Committee.

Bob Diamond has challenged assertions that response he gave to questions “lacked candour” while the regulators were accused of abusing their powers by pushing Bob Diamond out of his role as chief executive.

While any firm changes are not going to be suggested until the Wheatley review is finalised, what can we draw from the report?

1. The culture of Barclays, and banking, is still in a “poor state”

Barclays’ management turned a “blind eye to the culture of the trading floor” where manipulation of Libor was “shouted about across the dealing room floor”. This isn’t just about Barclays, though, and the reputational damage reflects badly on everyone working in the industry. While the report fell short of clear recommendations for addressing this, it said that: “Urgent reform, by both regulators and banks, is needed to prevent such misconduct flourishing.” If more banks are exposed, expect similar investigations into working practices currently being performed by Anthony Salz at Barclays.

2. Until the scandals end, working in banking will not make you popular at dinner parties

Banker bashing shows no signs of ending, globally, but particularly in the UK. While an end to this would “highly desirable”, bankers have to realize that they have “brought much of this on themselves”, says the report.

“While banks continue to provide evidence that wrongdoing persists the popular mood is likely to remain hostile,” it says.

3. Pub talk should focus on the football

Again, on the issue of trusting people working in banking, the only reason traders at Barclays were caught was because they left an electronic trail, but the assumption is that this is merely the “tip of the iceberg”, because (says Stuart Hosie MP) people speak “informally orally in the pub” away from the prying eyes and ears of compliance.

“We know in general that market abuse or manipulation of any category is incredibly difficult to spot, because often people are clever enough to do it in a verbal, off-the-record, off-the-legal-trail basis,” said Lord Turner.

4. Compliance departments will be both bigger and more intrusive

It’s no secret that investment banks have been investing in their compliance staff over the past few years, but the Libor investigation is only going to increase this. Barclays’ compliance department is painted as lacking power or credibility within the organisation and undoubtedly this is not a brush other banks want to be tarred with.

“If [the compliance department] is weak or ignored in the practices of the bank that is reflective of a poor culture which does not take seriously enough abiding by the rules essential to proper functioning of the bank and the wider financial system. The serious failings of the compliance function during the period under examination suggest there was this kind of culture at Barclays,” said the report.

5. The Governor’s eyebrows need to be reined in

If the ousting of Bon Diamond was unpalatable to some (particularly to many investment bankers at Barclays), at least the Mervyn King and “senior FSA staff” discussed the issue and worked together. Once the Bank of England assumes full responsibility, the governor’s powers will increase exponentially – this needs to be checked.

“The Governor of the Bank of England will stand all-powerful and able, by dint of raising his eyebrows, effectively to dismiss senior banking executives without discussing it with, or consulting, anyone. This is unsatisfactory,” says the report.

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