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bba statement on libor enforcement June 28, 2012

Posted by Bradley in : financial regulation , trackback

Today’s statement:

The British Bankers’ Association is shocked by yesterday’s report about LIBOR. The banks which contribute to the LIBOR rate must meet the necessary obligations to their regulators. The BBA has proactively co-operated with the authorities at every stage and will continue to work with the regulatory investigations into LIBOR, submitting information and making staff available for interview.
The current LIBOR review, with which our authorities are fully engaged, has been underway since March this year and is considering all aspects including the setting process. As part of this review we will now be asking the authorities to consider in what manner the LIBOR setting mechanism should be regulated in the future.

It is becoming clear that these enforcement actions haven’t increased confidence in the financial system.

Meanwhile, on the issue of sanctioning individuals – something many people commenting on this story have advocated – I was reading a fascinating article by William Simon with the title Where is the “Quality Movement” in Law Practice?. The article is about lawyering rather than banking , and I was reading it for a piece I am working on about peer review, but Simon suggests that when things go wrong there is often an impulse to sanction individuals rather than to fix the procedures which led to the problem:

Law firms appear spontaneously inclined to take the individual perspective. When they are caught in a scandal, they often look for individual wrongdoers and respond by disciplining or firing them.22 A consultant for liability insurers tells me that, when he visits a firm where serious professional failure has occurred, the most common response he hears is, “We had a problem, but we got rid of him.”

I think that traders who encourage people who have a role in the development of Libor and Euribor to change the quotes they feed in to the system to suit the interests of the traders, as well as the quote submitters who go along with the traders, are not fit and proper people to be employed in financial firms. And figuring out how to prevent this sort of behavior is critical. But firing one or two scapegoats is not the answer.

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