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FSA’s Turner Says Banks Culture One of ‘Cynical Entitlement’

Financial Services Authority Chairman Adair Turner
Financial Services Authority Chairman Adair Turner said, “The cynical greed of traders asking their colleagues to falsify their Libor submissions so that they could make bigger profits has justifiably shocked and angered people, in particular when we are facing hard economic times provoked by the financial crisis.” Photographer: Simon Dawson/Bloomberg

Financial Services Authority Chairman Adair Turner said banks must purge a culture of “cynical entitlement” after the Libor scandal that led to the resignation of Barclays Plc’s Robert Diamond.

The FSA’s probes into attempts to manipulate the London interbank offered rate and other similar benchmarks will result in more settlements “before the end of the year,” Turner said today. They require significant resources and caused a huge blow to the nation’s banking industry’s reputation, he said.

His comments came hours after Diamond stepped down as chief executive officer following the bank’s admission that it submitted false Libor information to benefit derivatives trades and bolster its own positions. Barclays, Britain’s second-biggest lender by assets, was fined a record $451 million in U.K. and U.S. probes last week.

“The cynical greed of traders asking their colleagues to falsify their Libor submissions so that they could make bigger profits has justifiably shocked and angered people, in particular when we are facing hard economic times provoked by the financial crisis,” Turner said.

Turner, who has been chairman of the FSA since 2008, recommended the board of Barclays think about the “challenge they faced in enacting sufficient culture change to put the problems of the past behind them,” he said, adding that he “respects and understands” Diamond’s decision to resign.

Libor investigations are at various stages “reflecting the cooperation of firms and their willingness to settle,” he said.

Trust, Reputation

The U.K. financial-services industry faces “a crisis of trust and reputation” after a series of mis-selling scandals, Turner said. Last week, Barclays, Royal Bank of Scotland Group Plc, Lloyds Banking Group Plc and HSBC Holdings Plc agreed to compensate small and medium-sized businesses improperly sold interest-rate derivatives.

Turner spoke today at a conference announcing the London regulator’s last annual report before it is split into two separate bodies next year.

Turner has a history of complaining about the industry he regulates. In 2009, he said some bank activities were “socially useless,” and was one of the first people in the U.K. to call for a tax on banks that would be used to distribute profits to the world’s poor. Banks should move away from products such as complex derivatives that don’t benefit society, Turner has said.

Free Lunches

“There are no free lunches, and shoddy wholesale practice is not a victimless act, even in those cases where it is not defined as a crime,” Turner said today. Banks and regulators must determine “how to purge the industry of the culture of cynical entitlement which was far too prevalent before the crisis.”

Chancellor of the Exchequer George Osborne told lawmakers yesterday that Martin Wheatley, designated to become CEO when part of the FSA is split into the Financial Conduct Authority, will conduct an inquiry into how Libor functions.

Wheatley’s inquiry, to conclude this summer, will look into whether Libor setting should be regulated, whether actual trade data can be used to set the benchmark, and “the adequacy of the U.K.’s current criminal and civil sanctioning powers with respect to financial conduct, and market abuse with regards to Libor,” Osborne said.

Wholesale Review

The FSA is also scheduled to report on banking conduct in other markets for wholesale financial products by October, Turner said. Wheatley declined to comment on which products would be included in the review.

Citigroup Inc., RBS, UBS AG, ICAP Plc, Lloyds and Deutsche Bank AG are among the firms some regulators are investigating. Eighteen banks are surveyed as part of the process of determining Libor and related rates.

Libor is derived from a survey of banks conducted each day on behalf of the British Bankers’ Association in London. Lenders are asked how much it would cost them to borrow from one another for 15 different periods, from overnight to one year, in currencies including dollars, euros, yen and Swiss francs. After a set number of quotes are excluded, those remaining are averaged and published for each currency by the BBA before noon.

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