The ethical problems of UK banking continue to pile up

On Friday Bank of England Governor Mark Carney was in full flow at Thomson Reuters headquarters in London. In particular he wanted to lecture us about the improvements in ethical standards at the Bank of England and in banking more generally.

The high road to a responsible, open financial system

Okay so what does that mean?

The financial system is fairer because of reforms that are ending the era of “too big to fail” banks and
addressing the root causes of a torrent of misconduct.

I am sure that many of you will be wondering about how he defines the word “fairer” or how the many mergers that were a feature of the UK response to the credit crunch helped end “too big to fail”? The creation of a mega bank by merger Lloyds with Halifax Bank of Scotland for example surely only made the situation more acute. As to addressing the root cause of misconduct we still actually await this happening in practice.

There was plenty of high-flying rhetoric to be found.

On one path, we can build a more effective,
resilient system on the new pillars of responsible financial globalisation.

The new buzz phrase is “efficient resilence” which if the previous buzz words and phrases are any guide ( temporary…… vigilant etc.) will mean anything but! Here is how Mark describes it.

Finally, efficient resilience is why the Bank of England, working with the Financial Conduct Authority, has
been at the forefront of efforts to increase individual accountability in financial services. While the UK’s
action plan to improve conduct includes stronger deterrents and reduced opportunities for bad behaviour, we
recognise that ex post penalties are only part of the solution.

Events other the weekend have brought the claims and boasts of the section below into focus.

To put greater emphasis on individual accountability, the UK has introduced new compensation rules that go
much further than other jurisdictions in aligning risk and reward. And we have put greater stress on the
importance of better governance and firm culture. …
Since codes are of little use if no one reads, follows or enforces them, the UK has instituted a unique Senior
Managers Regime to embed cultures of risk awareness, openness and ethical behaviour. Based on its early
successes, international authorities are now considering following the UK’s lead.

Barclays

Let us see if this is one of the early successes? It too has the rhetoric with its values of  Respect,  Integrity,  Service,  Excellence,  Stewardship or RISES program. ( https://www.home.barclays/about-barclays/barclays-values.html )

Barclays PLC and Barclays Bank PLC (Barclays) announce that the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA) have commenced investigations into:

·    Jes Staley, Group Chief Executive Officer of Barclays, as to his individual conduct and senior manager responsibilities relating to Barclays whistleblowing programme and an attempt by Mr Staley in 2016 to identify the author of a letter that was treated by Barclays Bank PLC as a whistleblow; and  

We are expected to believe apparently it was all just a misunderstanding.

The Board has concluded that Jes Staley, Group Chief Executive Officer, honestly, but mistakenly, believed that it was permissible to identify the author of the letter and has accepted his explanation that he was trying to protect a colleague who had experienced personal difficulties in the past from what he believed to be an unfair attack, and has accepted his apology

I would imagine that pretty much everyone reading this is aware of modern whistleblowing procedures so it seems strange that the CEO of Barclays was not. Actually even when he was told he had another go a month later.

There is a clear example of “back to the future” when we note that rather than being sacked we move into Yes Prime Minister land as he will receive one of the “strongly worded letters” so beloved of the apochryphal civil servant Sir Humphrey Appleby! We are told there will be this too “a very significant compensation adjustment will be made to Mr Staley’s variable compensation award.” But as it is “variable” how will we know?

The Bank of England

There is bad news in the offing tonight for the Bank of England as the BBC’s Panorama has looked again at its role in Libor ( London Interbank Offered Rate ) rigging.

A secret recording that implicates the Bank of England in Libor rigging has been uncovered by BBC Panorama.

The 2008 recording adds to evidence the central bank repeatedly pressured commercial banks during the financial crisis to push their Libor rates down.

Well done to Andy Verity for continuing to pursue this issue and along the way we meet some old “friends”

The recording calls into question evidence given in 2012 to the Treasury select committee by former Barclays boss Bob Diamond and Paul Tucker, the man who went on to become the deputy governor of the Bank of England.

It is like a television series with a regular cast isn’t it? Also the BBC does not do Paul Tucker full justice as there was this from 2013.

Paul Tucker, who served as a deputy governor at the Bank of England, has been given a knighthood for services to central banking.

Some might think that a substantial salary and a pension which would current cost around £7 million to buy were rewards enough in themselves. Unless of course you believe that Paul Tucker got his “K” for covering things up.

Comment

There is much to consider here and in the individual case of Governor Carney the Libor or as it became named the Liebor issue predated his arrival. However he has his own problems. The most recent was the resignation of Charlotte Hogg who seemed as uninformed about monetary policy as she was about the consequences of her bother’s job. It was put well by Deborah Orr in the Guardian.

Clearly, people run the risk of feeling over-entitled. They believe strongly in rules, but develop a belief that they are the people who make the rules, not the people who follow them……..….Finally, of course, privileged people assume, often rightly, that no one is going to hold them to account.

Only on Thursday we looked at Gertjan Vlieghe and his problems understanding that once he was at the Bank of England he had to break his financial links with the hedge fund Brevan Howard. Hardly a brave new dawn is it?

Meanwhile if we look back to the effective bailout by the Qataris of Barclays back in the day we wonder how the court case into this will play out? It is all quite a mess is we throw in PPI miss selling and the way that small businesses were miss sold interest-rate swaps as well as those who became “mortgage prisoners”.

Meanwhile though in Mark Carney’s world it is all going rather well.

Being at the heart of the global financial system reinforces the ability of the rest of the UK economy, from
manufacturing to the creative industries, to compete globally. And it broadens the investment opportunities
for UK savers, giving them the potential to earn better risk-adjusted returns.

Do UK savers realise how good they apparently have it? Oh and was the Barclays story released today to help take the pressure off the Bank of England Liebor news?

 

 

Advertisements

23 thoughts on “The ethical problems of UK banking continue to pile up

  1. QE and dropping interest rates to 0.5% were obviously not enough to keep mortgage rates low.

    All part of Browns plan to save the world.

    • Hi Arthur

      It would appear that there is virtually nothing the Bank of England will not do to protect “the precious”. I await its response to the evidence presented in tonight’s BBC Panorama program.

      • I just can’t understand why there is no question of whom in government was pulling the strings. Seems the BBC want it to stop at Diamond and Tucker.

        Does strike me that this is all orchestrated.

  2. I loved the way that Barclays chose Simmons & Simmons to investigate Mr Staley. They were always going to give Barclays the answer they wanted to hear.
    If this had been a mere mortal he would have been fired on the spot and strung out to dry. This guy does it twice and still gets away with it.

    • It is actually worse than Shaun reports, as the whistleblower was directly complaining about the way the Staley, the CEO, had recruited someone. So, not just an employee complaining about some remote misdemeanour. Anyone even half awake at the top of an organisation would never touch a whistleblower who named them as the problem

  3. It is what actually happens and the facts that matter, not some pompous spin that MC puts on it. They are all out for their own advancement and reward, and will do almost anything to keep their jobs and perks.
    The B of E is at the forefront to ” increase individuals accountability in financial services” -oh yeah, Mike, we all believe you, not!

    • Hi Foxy

      It is like an episode of Yes Prime Minister so I will hand over to it.

      “Sir Desmond Glazebrook: They’ve broken the rules.
      Sir Humphrey: What, you mean the insider trading regulations?
      Sir Desmond Glazebrook: No.
      Sir Humphrey: Oh. Well, that’s one relief.
      Sir Desmond Glazebrook: I mean of course they’ve broken those, but they’ve broken the basic, the basic rule of the City.
      Sir Humphrey: I didn’t know there were any.
      Sir Desmond Glazebrook: Just the one. If you’re incompetent you have to be honest, and if you’re crooked you have to be clever. See, if you’re honest, then when you make a pig’s breakfast of things the chaps rally round and help you out.
      Sir Humphrey: If you’re crooked?
      Sir Desmond Glazebrook: Well, if you’re making good profits for them, chaps don’t start asking questions; they’re not stupid. Well, not that stupid.
      Sir Humphrey: So the ideal is a firm which is honest and clever.
      Sir Desmond Glazebrook: Yes. Let me know if you ever come across one, won’t you.”.

  4. In my humble opinion, you will never get a “fairer” or more honest system while you have the obscene rewards for these jobs. I write as an investment banker many years ago. The facts are that, in the weird world of the City:
    1. You tend to mix with other people who also think that they are really really worth the money, that a salary of £200k is simply derisory etc etc. I can actually remember a colleague in 1997 getting £110,000 as a bonus and telling me that it was (and I quote) “an insult”;
    2. They actually believe that their jobs are useful and that we plebs should be pretty grateful that they “keep the wheels of the economy running”;
    3, They believe that it is irrelevant that they can only make these absurd amounts is because they are allowed the use of gigantic balance sheets to which they have not contributed (and that the occasional bust bank is well worth it “in the long run”).
    In other words, they mistake their own bubble for some sort of justifiable existence. As seen above, they will do anything to perpetuate it and see rules applying only to the little people.
    I will now go for a lie down!

    • Hi James

      I was an investment banker too back then although where I worked still called us merchant bankers. And as you say it was and indeed is quite a bubble where due to the hours and salaries has all the features of a well paid ghetto

      • We used to have a word for Investment bankers at work that rhymed with banker but due to work restrictions on language used in the office we would just refer to such people as a “merchant banker”.

    • I bet you do. Investment banker, lecturer, MD of multiple businesses you own and Chartered accountant to boot. You have been a busy bee!

  5. Great blog as always, Shaun.
    Carney sounds more like a preacher than a central banker with his high road and low road references. In the ballad, the singer who takes the low road who is going to get to Scotland first, so even as a metaphor it is a little muddled. As usual, Carney spoke in an almost incomprehensible alphabet soup of acronyms and initialisms. Where a normal human being would talk about the rest of the EU in distinction from the UK, he repeatedly referred to the EU-27, which means or at least formerly meant the EU prior to Croatia becoming a member.
    In the Q&A for his speech, the first businessman asking a question wanted to know if passporting privileges for UK financial firms would survive Brexit. Carney sounded like a doctor speaking to someone who has just been diagnosed with cancer: hope for the best, but prepare for the worst. The speech and the Q&A really seemed to be oversold as a way of finding out what the future holds for the UK financial services sector. So much will depend on the negotiations with the rest of the EU and with other countries of the world. Carney neither knows how these will turn out nor will he have the final say in what Britain will settle for.

    • Hi Andrew and thank you

      I wonder if this was all pre-planned. Knowing about the BBC documentary Governor Carney speaks on the subject a few days before. Then on the day there is the deflection technique of the latest Barclays story an organisation which of course has been involved all the way along. But the BBC Panorama documentary was really rather damning as we wait to see if Paul Tucker and Bob Diamond will be called back to HM Parliament.

  6. I thought that you readers might be amused by the three key tests for decisions taken by Citibank staff, as posted in large letters in its headquarters in New York. These are the exact words:
    1. They are in our clients’ interests
    2. They create economic value
    3. They are always systemically responsible.
    Yeah, right!

  7. In my experience people who do wrong in their job usually get promoted rather than sacked. They usually have some knowledge of someone elses misdeeds and so can rise the greasy pole by a sort of unspoken blackmail type of behaviour.

  8. ‘ investment opportunities for UK savers, giving them the potential to earn better risk-adjusted returns’

    Maybe the key bit is ‘risk adjusted’? For as far as MC can see into the future there is no risk at all of rate increases. Perhaps we even have a concept of Negative Risk? The BoE will ensure no inflation (that’s counted) and property continues its exponential trajectory, so be grateful for any return ‘I’ have created for you.

    People get a ‘K’ for (much) less …..

    • Hi DL

      There are a couple of other weasel words in that sentence as I note “opportunities” and “potential”. For example as I type this Arsenal are 3-0 down to Crystal Palace with 7 minutes to go so they have an “opportunity” with the “potential” for a near record turnaround! If Twitter is any guide it might be best not to suggest that to any Gunners right now….

  9. If I recall correctly at the time, there was a trail of e-mails and telephone conversations going backwards and forwards that clearly linked officials at the Bank of England to Libor fixing, they wanted Barclays to submit lower rates as their submissions were consistently higher than other UK banks at the time. The BofE in a conversation with Bob Diamond expressed their concern that Libor rates were too high as a result of banks bidding at too high rates, Diamond naturally took this as a request to comply and lower Barclay’s submissions, he passed details of this conversation to Jerry Del Missier who then instructed his dealers to submit lower Libor rates.

    So what exactly did Bob Diamond, Jerry Del Missier, and Barclays do wrong then? Nothing!!! They followed the request of the UK central bank and submitted their bids in the Libor system that existed at the time that everyone knew was flawed and open to manipulation.

    They paid the price to cover up the Bank of England’s knowledge and involvement in this matter by losing their jobs, the media went to town with more headline grabbing stories telling people that knew no better it was the greedy bankers “wot dun it”. The BofE had to be seen to be totally above reproach, so Barclays had to carry all of the blame, how could messrs diamond and Del Missier finger the Bank of England to the Treasury Select Comittee?! I wish they had.

    It will very interesting to see if the Panorama investigation covers this in any detail.

    • Kevin, good post. If I remember correctly there was a lot of scrutiny of LIBOR at the time because people were trying to work out which banks had run out of money so I can well imagine the BoE wanting the rate to stay steady and low for all banks to avoid revealing which were the weakest and maybe triggering a bank-run.

  10. Pingback: Barclays boss admits errors over whistleblower and says 'I got too personally involved' - as it happened - Thomas Walther

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s