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banks behaving badly: libor scandal, banking culture, more mis-selling June 29, 2012

Posted by Bradley in : financial regulation , trackback

Were the Barclays settlements really A Victory for Regulators (as the front page of the New York Times Business section proclaimed yesterday)?

An e-petition for an inquiry into bankers’ behaviour is now available for signature here (submitted by Ann Pettifor, Director of Prime, “an economic think-tank that promotes understanding of the nature of credit”). Mervyn King says no inquiry is necessary (although he does say there need to be changes to the culture and structure of the banking industry). Cameron agreed with King.

With respect to the Barclays Libor-related conduct in the pre-financial crisis period, Bob Diamond said (in a letter to Andrew Tyrie MP, the Chairman of the Treasury Select Committee):

This inappropriate conduct was limited to a small number of people relative to the size of Barclays trading operations, and the authorities found no evidence that anyone more senior than the immediate desk supervisors was aware of the requests by traders, at the time that they were made. Nonetheless, it is clear that the control systems in place at the time were not strong enough and should have been much better.

There’s a lot in the letter about how important Barclays thinks it is to rebuild trust and fix its systems, and of course much about how lots of other banks behaved badly too. I’m not sure how much that helps Barclays really. After all, the people who are upset about this issue are upset as much because it reinforces their belief that bankers in general can’t be trusted. That it is not just about Barclays makes it worse rather than better.

And, to top it all, there’s more news about bad behaviour by banks from the FSA today: Barclays, HSBC, Lloyds and RBS agreed to provide redress with respect to the mis-selling of interest rate hedging products to some small and medium sized businesses (SMEs).

But when the US Supreme Court holds that the First Amendment protects our right to tell lies (in US v Alvarez, finding the Stolen Valor Act to be unconstitutional), unless we are actually committing fraud or doing a rather limited number of other bad things, why should we expect banks to be careful about what they say?

(update: link to Bank of England webcast of press conference about the June 2012 Financial Stability report, held today).

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