Libor report calls for tighter U.K. bank controls
SAN FRANCISCO (MarketWatch) -- Britain's Financial Services Authority and the Bank of England need to tighten regulation of banks, raise fines for wrongdoing and possibly acquire the authority to fire senior executives, according to a report from Parliament's Treasury Select Committee following to scandal of
"The sustained rigging of a crucial benchmark rate has done great damage to the U.K.'s reputation. Public trust in banks is at an all-time low," Andrew Tyrie, chairman of the committee, said in a news release late Friday. "Urgent improvements, both to the way banks are run, and the way they are regulated, is needed if public and market confidence is to be restored."
The report points to manipulation by individuals for personal benefit and alleges that "senior management at Barclays were issuing instructions to manipulate artificially the bank's submissions. It is unlikely that Barclays was the only bank attempting this."
The report follows the airing of false reporting by Barclays, and possibly other banks based in the U.K., U.S. and elsewhere, of how much they paid to borrow during the financial crisis. The British Bankers' Association's London Interbank Offered Rate, or Libor, is a global benchmark for lending among financial institutions and more than $300 trillion in securities worldwide.
Barclays' Chief executive Bob Diamond resigned in July after the bank paid around $452 million in penalties for manipulating the rate, which is determined by averaging the rate several large banks report that they can borrow at each day. Barclays reported that it was able to borrow at artificially low rates in order to not appear to be struggling during the heart of the financial crisis in 2008.
The parliamentary report said while the FSA appeared to be on the case, more action is needed. The FSA needs to devote more thought to where risk lies instead of "box-ticking and endless data collection "
"This could reduce the regulatory burden and, at the same time, provide more effective oversight," Tyrie said. "It will involve a change in culture on the part of the regulators and is a major challenge for the future."
The report calls for the FSA to levy much heavier penalties on firms that fail fully to cooperate, but allow some flexibility to encourage companies to admit misconduct.
The FSA should also assure corporate and individual whistleblowers have "appropriate incentives for the reporting of wrongdoing," it said
A much stronger governance framework is needed for the Bank of England, the report said.
"The regulatory authorities need to possess the ability to remove senior executives, but when they exercise this power, they should recognize their duty of care to shareholders," which in the case of banks mostly owned by the government, include all taxpayers.
An email to Barclay's press office requesting comment was not immediately answered.