The Treasury select committee unwittingly made a compelling case for a judge-led investigation into banking
On show on Wednesday in parliament was a textbook display of the limits of parliamentary inquiries. The newly ejected boss of one of the world’s biggest, and now most disgraced, banks spent an afternoon supposedly being grilled by the Treasury select committee; and the 13 MPs found out almost nothing new. Not because Bob Diamond was taciturn; but because the committee members were not up to the job of winkling out telling points. Over three hours, they unwittingly made a compelling case for a judge-led public investigation into the dangerous excesses and wilful outrages of the banking industry.
Where they needed forensic detail, the MPs preferred bluster. Instead of acquiring expertise, they gladly professed ignorance. Two of the 13 committee members had been directly employed by Barclays; another, we were reminded, is still a director at a City money broker. Yet this experience did not strengthen the MPs’ questioning, but seemed to make them even tamer, as Mr Diamond addressed them by their forenames and dead-batted the most polished questions.
The session should have been so different. This week began with the revelation that Barclays staff thought the Bank of England had given them licence to fiddle the system of setting Libor interest rates. But the MPs did not press very hard on that area. As the hearing began, George Osborne was flinging around accusations that Gordon Brown’s lieutenants were “clearly involved” in the scandal. Again, Mr Diamond was not asked to address those charges. Instead, he talked a lot about how much he “loved” Barclays, the Quaker-founded conservative institution he turned into a giant casino bank, before stewarding it to the largest fine in the history of British financial regulation. The years Barclays staff spent rigging the money market made him “physically ill”. Apart from these made-for-TV soundbites, the biggest revelations were that Mr Diamond thinks other institutions were involved (as regulators warned last week) and that he intends to take his payoff of £22m. However sad this last revelation, it is entirely true to Mr Diamond’s form. As Lib Dem MP John Thurso observed wistfully towards the end, “If you were an English cricketer, you would be Geoffrey Boycott. You have been occupying the crease for two and a half hours and I am not sure we are any further forward.”
This will surely not be the last public interrogation of Mr Diamond. But it does show just why we need a forensic and concentrated examination of what’s been going on at Barclays and throughout the banking industry – and among the regulators and ministers who have allowed one of Britain’s leading industries to become serially scandal-ridden and disastrously costly to the rest of us.
It needs to be uncovered just how far this market-fixing went – this has all the makings of systemic scandal
“There was a period of remorse and apology for banks, and I think that period needs to be over,” Barclays’ boss Bob Diamond declared last year. Not if Wednesday’s news is anything to go by, Mr Diamond, not by a long way. The bank yesterday agreed to pay fines totalling £290m to British and American authorities, to settle charges of market rigging. The £60m it will hand over to the Financial Services Authority alone is the biggest penalty ever levied by the City watchdog – yet the nature of the alleged transgression is so fundamental, so serious and, according to officials, so “widespread” that it appears utterly inadequate. Nor will the decision of Mr Diamond and his team to apologise and forfeit this year’s bonuses take the sting out of the matter.
What regulators appears to have uncovered is a scam at the heart of a £350tn market; one that ultimately affects how much families pay on their tracker mortgages, as well as the costs of transactions for big City institutions. It should not be settled with a fine, no matter how large, but must be followed up with a further investigation into Barclays – making public just how many employees took part (rather than yesterday’s mentions of Trader C and Manager E), and how they will be punished, up to and including criminal proceedings. Not only that, but it also needs to be uncovered just how far this market-fixing went. Certainly, the clear implication of yesterday’s comment from the Commodity Futures Trading Commission that Barclays’ staff “co-ordinated with and aided and abetted traders at other banks” indicates that Mr Diamond will not be the last chief executive in the firing line over this issue.
Strip away the acronyms and the charges against Barclays are straightforward. Its traders and senior management are accused of tampering with two key interest rates to bolster their own profits. And they apparently did this not once, but repeatedly over four years. Indeed, the practice seems to have become so widespread that staff joke about it in emails: “Always happy to help, leave it with me, Sir.“; “Done … for you big boy”; “I love you”. This from the bank that earlier this year held citizenship days for its staff – and which, through state guarantees and emergency provisions of liquidity, has been supported by the British taxpayer.
There has been much talk about banks being too big to fail, or too big to bail. The picture presented by Wednesday’s charge sheets is altogether simpler: throughout boom and bust, Barclays staff saw themselves as being too big to play by the rules. And the likely result is that everyone else paid millions more than necessary to borrow. What’s more, they do not look like the only ones: this has all the makings of systemic scandal.
Bob Diamond says Treasury move inflicted ‘unnecessary damage’ on the bank’s reputation
Bob Diamond, chief executive of Barclays, has complained to MPs about the “unnecessary damage” inflicted on the bank’s reputation after the move by the government in February to close two “aggressive” tax avoidance schemes.
In a letter to Andrew Tyrie, the Conservative MP who chairs the Commons Treasury select committee, Diamond claims that the reputation of the UK as a business centre will also be threatened if the government breaches confidential agreements, as he implies was the case with Barclays’ tax affairs.
“The way in which this situation was handled seems to us to have been completely unwarranted,” he said. “Unnecessary damage was placed on Barclays’ reputation just at a time when the focus should be on rebuilding confidence and accelerating growth, not undermining it.”
Exchequer secretary David Gauke took quick action in February to close two tax avoidance schemes that Barclays had disclosed to HM Revenue & Customs and took the highly unusual step of changing the law retrospectively. While Gauke did not name the bank, Barclays’ name emerged.
Tyrie published the letter from Diamond less than a week after the bank held its “citizenship day” to set out commitments on matters such as tax and the letter made reference to this. “Especially in the context of our focus on citizenship, Barclays takes its responsibilities with respect to its tax affairs very seriously,” Diamond said. His personal tax affairs have been highlighted since the action in February as the bank paid £5.7m to the exchequer to avoid him paying a tax bill twice when he relocated back from New York to London to become chief executive at the start of last year. Telling Tyrie that he was grateful for the opportunity to discuss the matter, Diamond said: “I should hasten to add that we have taken away from then lessons and are … carefully reviewing the nature of our business activities here, at the minimum to ensure that we take steps to prevent such an event from occurring again.”
Tyrie has asked the chancellor, George Osborne, for his version of events. “I have forwarded Mr Diamond’s letter to the chancellor. It is important that we find out what happened here,” said Tyrie.
Diamond stressed that Barclays had “voluntarily and proactively disclosed to HRMC” the scheme it had used when buying back its debt in “a tax efficient matter”. The process had been used by other banks but Barclays said that it was “the first and only taxpayer to make a disclosure”. He added: “We were therefore surprised to be singled out in the way that occurred, not only through a retroactive change of law but the effective naming of Barclays by the exchequer secretary in his statement to parliament, accusing the bank of entering into a ‘highly abusive’ scheme.
“We believe that the confidentiality of taxpayers’ affairs is an important principle of UK tax law that has stood for many years … We feel that it is important to the UK’s reputation as a business centre that this principle is not seen to be compromised or watered down simply because the tax authorities do not agree with the material that it disclosed to them.”
He said the bank had had strong legal guidance about the way it was buying back its debt – on the schemes closed by the Treasury – on which it made a profit of £1.1bn in 2011.