And another mis-selling scandal is revealed! Click here to read the latest.
The recent revelations that LIBOR was controlled by a cartel of major banks appears to have drawn a gasp from some quarters.
I can’t understand why!
The noble profession of banking has been taking a hammering since the 2008 crash (and I suspect further crashes are still to come) but there are now suggestions the Serious Fraud Office (SFO) will be actively investigating the behavior of several institutions after Barclays was discovered to have acted, possibly in conjunction with others, to set inter-bank lending rates artificially high.
I challenge anyone to more than feign surprise.
The Bank of England’s interest rates are at a historic low of 0.5% but all borrowers will have noticed their interest payments have remained fairly static and contemporarily high.
Why? The cost of inter-bank lending as set by LIBOR.
Bank balance sheets have been shored up by huge margins on lending, created as the gulf between their borrowing and lending costs have become more of a chasm, allowing them to re-capitalise during one of the worst receessions in banking history yet no-one thought that suspicious?
I know that banks attempt to assess the level of risk involved in any lending and this influences the interest rate…..recognise the irony involved in banks that are reckless and not allowed to fail courtesy of the taxpayer via the Treasury attempting to analyse business models and judge potential return.
During this time, businesses have folded; homes repossessed; jobs lost and unemployment queues grown; hard hit families have disintegrated and a few have hit rock bottom whilst the Bank of England continues to prints money through quantitive easing and no-one questioned how the injection of huge amounts of money and slashed the borrowing costs failed to make a blind bit of difference.
This time though, the culture crisis has gone criminal.
The fixing of prices in this cartel fashion, if proven, is illegal even for teflon bankers.
The pursuit of greater profits at any and all cost has led to a crossing of a very significant line.
I could almost feel a modicum of sympathy with Barclays Chairman but, reminded that corporate governance sits at the very core of the duties and responsibilities of the Board of Directors, and that questions were never asked of the Chief Executive and his team as to how such incredible profits could be made in such exceptional circumstances was a gross oversight whichever way you cut it.
The prevailing culture across the financial sector created a competitive maelstrom which sucked in many more victims rather than the creation of more lending ports the Chancellor expected he was investing in.
That senior teams continue to turn a blind eye to profiteering for the sake of the shareholders is, in every sense, wrong. The Board should be there to protect the shareholder not to maximize profits at any cost.
There is a difference.
I have one last concern with this latest installment of the crisis. People are discussing the need to return “ethics” to business.
I make a distinction – not everything that is legal is ethical and we would do to remember and recognize that this is not a question of unethical behavior but of potentially illegal activity.
Had the artificial setting of interest rates been legal, it would still not have been ethical and until we realign our paradigm, the concept of responsible capitalism will remain nothing more than another political ideology!
A good friend of mine was taught me the definition of QED – I leave the last words on this blog as a tribute to him – Quad Erat Demonstratum.
