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BOE Was Naive on Libor and King Overstepped Power, Lawmakers Say

Bank of England Governor Mervyn King
Mervyn King, governor of the Bank of England. Photographer: Simon Dawson/Bloomberg

Aug. 18 (Bloomberg) -- The Bank of England’s handling of questions about the rigging of the London interbank offered rate was naive and lacked urgency, a U.K. panel of lawmakers said.

The House of Commons Treasury Committee also criticized Governor Mervyn King for his part in the effective ousting of Barclays Plc Chief Executive Officer Robert Diamond last month, saying it was “difficult to justify” and that greater checks on his power were needed.

“The evidence suggests that the Bank of England was aware of the incentive for banks to behave dishonestly, yet did not think that dishonesty was occurring,” the committee said in preliminary findings into the scandal, published in London today. “With hindsight this suggests a naivety on the part of the Bank of England. They were certainly relatively inactive.”

Barclays was fined a record 290 million pounds ($455 million) in June for attempting to manipulate Libor, prompting the resignation of Diamond as well as the bank’s chairman and chief operating officer. The central bank became embroiled after Barclays released a memo of a 2008 phone call between Diamond and Deputy Governor Paul Tucker. The note suggested Tucker might have hinted Barclays could lowball its Libor submissions.


In its report, the Treasury Committee downplayed the role of that conversation, saying it may have been used to distract lawmakers from other issues. The finding may provide relief to Tucker as he tries to stay in contention to for the central bank’s top job next year. Still, the panel criticized the central bank for not keeping its own record of the call.

“It remains possible that the entire Tucker-Diamond dialogue may have been a smokescreen,” the lawmakers said. “The committee remains skeptical about the importance of the Tucker-Diamond phone call given the already established pattern of dishonest Libor submissions.”

Lawmakers stopped short of accusing the central bank of misconduct over its failures on Libor and said the shortcomings of the Financial Services Authority as the prudential regulator were “far more serious.” In a statement, the Bank of England said it welcomes the conclusion that it “did not have any regulatory responsibilities for Libor during the relevant period.”

Britain’s Parliament is debating a financial-regulation bill that will see the FSA absorbed into the Bank of England and hand the central bank sweeping powers. At the same time, Chancellor of the Exchequer George Osborne must find a replacement for King, who is due to retire in June. Both Tucker and FSA Chairman Adair Turner have been linked to the job, as has former top U.K. civil servant Gus O’Donnell.

Fait Accompli

On the resignation of Diamond, the Treasury Committee said it was wrong of King and Turner to interfere in decisions about management at banks. They both spoke to former Barclays Chairman Marcus Agius after the bank was fined and expressed concerns about management.

“Mr. Diamond’s resignation as Barclays CEO was a fait accompli once both men intervened,” the committee said. “Neither the FSA or the Bank of England should intervene to remove senior bank executives to placate public, media and parliamentary opinion.”

The central bank said in its response that King’s discussion with Agius “in the circumstances was fully justified.” Asked about the accusation that it was “inactive” in relation to Libor, a Bank of England spokesman referred to comments by King to the Treasury Committee on July 17 that it did not have any evidence of wrongdoing.

The Treasury Committee said King’s discussion with Agius “exposed implicit, and potentially arbitrary, power to force out senior figures in the financial services industry.” It said that once the Bank of England assumes powers over financial stability and micro-prudential supervision, “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,” the lawmakers said. “A much stronger governance framework is needed.”

To contact the reporters on this story: Scott Hamilton in London at; Jennifer Ryan in London at

To contact the editor responsible for this story: Matthew Brockett at

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