A not-so-cultured club?

Like a bacteria, politicians talk of a change in the banking culture, but if Barclays is right, it is not just bankers who will need to change their culture club

A536b039e8de5fd98eb0b5584ed98b179c2a77cb
F64191118568e16d131da2cc7fcff8345ae62ce3
Simon Miller
On 6 July 2012 15:46

Like a bacteria growing in a petri dish there has been a lot of talk about culture this week, with politicians vowing to change the banking culture to Bob Diamond apologising for those Barclays staff acting against the culture of the bank.

But hang on; culture isn’t defined by a nice PR statement or an MP wanting to look tough for the voters. Culture is the habits you pick up, the shared experiences, the societal norms that you interact with, and guess what – the signs aren’t looking god for any of us.

For all the talk about evil bankers, there never seems to be a word about the responsibilities of shareholders and customers. Sure when times were good, everyone lapped it up. MPs could open a new-PFI’d school and the banker could get great bonuses. We got loans for cars, credit for holidays, mortgages for shoeboxes while shareholders enjoyed nice dividends.

And sure, there may have been doubts but the greed culture was strong. But more importantly, the responsibility culture was weak and still is.

After all, can someone explain to me how a football manager can be sacked for poor performance yet get a payoff? Or how a politician can scam his expenses yet receive a nice ‘resettlement package’ when he stands down or is voted out?

This is the major cultural shift. No longer the whisky and revolver, bankers can stiff a system because everyone is. Who cares what happens to others, give me the money.

Some people confuse what we have with capitalism. It is not. Competition and a true market place means losers as well as winners. It means choice. A bank that fails falls. A banker that breaks the rules loses. A bank that upsets its customers loses business. If we had capitalism, banks would have gone to the wall, regulations would have been adhered to, bonuses would have disappeared and people would have gone to prison for market abuses.

Instead we have the politicians strutting like peacocks now that they’re a bit further down the hate list for a change.

One particular cock is Ed Balls who has obviously had a touch of the Gordons by not remembering anything to do with the previous government.

All this happened on Labour’s watch. The creation of the tri-partite regulatory system allowed Libor to slip through the net while the Financial Services Authority was allowed to apply its skills in inactivity to the City.

How Labour can try and make political capital out of a mess of their making is unbelievable. To be honest, I don’t think another pension scheme for barristers is a good idea so, as long as the right questions are asked, I have no problem with a cross-party, cross-house investigation.

Politically the smoking gun is obviously the suggestion that Barclays was leant on by the Bank of England after pressure from Whitehall and the question is: who was the official?

What no-one seems to be asking though is why? Why was it important that Barclays towed the line?

If Barclays’ submission is accurate, then during the financial crisis, and in particular 2008, it was complaining that other banks were submitting false data but officialdom ignored this.

Why?

Cast your mind back to Alistair Darling’s first budget as chancellor. Whitehall was in panic stations. Despite Gordon Brown hailing himself as saviour of the world, 2008 saw the credit crunch hit the UK big time with Libor rates sky high and banks shutting up credit lines to businesses.

The budget offered a credit guarantee scheme which the government hoped would bring confidence to the markets and so the inter-bank lending rates would come down, making it cheaper to borrow as the risk premium came down.

But what if the rate remained stubbornly high, and disconnected to the base rate? Disaster.

If Barclays’ evidence is true then the political dimensions become clearer. Labour needed the Libor rate down to prove that its package was saving the UK. Don’t take my word for it.

Gordon Brown at PMQs on, quite memorably, the 5th of November 2008 said: “We have been trying to get the liquidity into the system, recapitalise our banks and then get them to resume the lending that is necessary. The Libor has decreased from 6.25 percent to 5.25 percent. We are starting to make progress.”

Or perhaps Economic Secretary to the Treasury Ian Pearson five days later: “The Government’s policy on credit guarantees is an important part of the overall financial package announced on 8 September, and progress has been made. Overnight Libor was 6.8 percent on 16 September; today, it is 3.2 percent. The three-month LIBOR rate has declined over the past 10 days from 6.3 percent to 4.4 percent.”

So whoever the official was, at least we have a possible why. The Libor rate had to come down if a flagship economic policy was to work.

Did someone really put pressure on Barclays via the BoE? Is Barclays’ submission true and that there appeared a tacit agreement to let banks get on with a systemic collusion on the rate which in turn benefitted the government? Was that someone a politician?

It is entirely possible that Barclays got this one wrong and that other banks were simply considered better risks than it - however, how RBS managed it is a rum one.

Before politicians start wittering on about changing cultures, they had better get their own culture in order – especially if one of them has used his position to abuse the market.

Simon Miller is the Editor of Financial Risks Today. He tweets at @simontm71

Comments
blog comments powered by Disqus

We are wholly dependent on the kindness of our readers for our continued work. We thank you in advance for any support you can offer.

 
Options
Advertisement
Recommended
Advertisement
Advertisement