16/07/2012 17:35 BST

Libor Scandal: Andrew Bailey Insists Barclays' Problems Originated From 'Tone At The Top'

A top banking regulator told MPs that Barclays problems originated from "the tone at the top" when former boss Bob Diamond was chief executive of the bank.

Andrew Bailey, head of the Prudential Business Unit at the Financial Services Authority (FSA), said that the bank had a "gaming culture" and added that Mr Diamond's account of his and the bank's relationship with regulators was "highly selective".

andrew bailey

Andrew Bailey, head of the Prudential Business Unit at the Financial Services Authority (FSA), lambasted Diamond

Earlier, former Barclays chief operating officer Jerry del Missier confirmed he had told the bank's money market desk to lower Libor submissions in October 2008 because he believed the Bank of England had directly instructed the bank to do so.

He also revealed that Barclays' compliance department, which is responsible for ensuring that policies and procedures are adhered to, was made aware of the request to lower Libor submissions.

Later in the session, FSA executive chairman Lord Adair Turner said Mr Diamond was aware that the regulator had sent a letter detailing issues with Barclays' culture, contradicting his evidence.

Mr Diamond told the committee he was not aware that the FSA had sent a letter to the bank in April warning over the bank's "aggressive" stance on regulation.

bob diamond

Bob Diamond was forced to step down following the scandal

However, an April letter from Lord Turner to Barclays chairman Marcus Agius, who will step down once a replacement for Mr Diamond is found, was subsequently made public.

Lord Turner said that Mr Diamond knew of the letter and had asked to discuss it after a meeting.

Lord Turner added that Mr Diamond had said: "I'm extremely concerned to receive this letter and we take very seriously what you said."

He confirmed there are ongoing investigations into other banks.

The FSA executive chairman said Libor setting is not a formally regulated process, although it "could have been supervised".

Lord Turner said he ordered an investigation into how the FSA missed repeated warnings from Barclays staff that the Libor was being manipulated.

The regulator has been attacked for missing warnings from Barclays employees and not acting sooner to tackle allegations of rate-rigging within the bank.

Bank chiefs warned the FSA about problems with Libor as early as 2007, the committee heard, but it was not until 2010 and intervention by US regulators that the FSA launched its own probe.

Tracey McDermott, FSA acting director of enforcement and financial crime, confirmed the watchdog is investigating seven other banks, but not all were British.

Mr del Missier was dragged into the affair when it emerged he had misinterpreted a conversation between Mr Diamond and Bank of England deputy governor Paul Tucker as an instruction to lower Libor submissions amid fears over Barclays' financial health.

Earlier, the Canadian banker said he "fully expected" staff to take into account the Bank of England's view that the bank's rates were too high.

Mr del Missier told the committee that he only spoke to the head of the money market desk and did not follow up to check what effect his instruction had ultimately had on Libor submissions.


Mr del Missier misinterpreted a conversation between Mr Diamond and Bank of England deputy governor Paul Tucker as an instruction to lower Libor submissions

Mr del Missier told the committee he believed the Bank of England alone instructed Barclays to lower Libor submissions.

Mr Diamond previously told the committee he did not believe the Bank of England instructed the bank to lower the inter-bank lending rate and did not believe he instructed Mr del Missier to do so.

Asked how he could have misinterpreted Mr Diamond's conversation, Mr del Missier said: "I can only tell you what I clearly recall from the conversation."

Mr del Missier, who was co-head of the investment arm Barclays Capital at the time the rates were lowered in 2008, denied that the low-balling of Libor rates was "improper" in the context of what was happening in the financial sector at the time.

He said: "What was communicated to me by Mr Diamond was that there was political pressure on the bank regarding Barclays' health, and that we should get our Libor rates down."

Mr del Missier added he was in "regular communication but not always daily" with Mr Diamond.

Mr del Missier identified the head of the money markets desk, to whom he relayed the instruction to lower Libor rates, as Mark Dearlove.

Mr del Missier told the committee he was not aware of any low-balling before the contentious phonecall between Mr Tucker and Mr Diamond.

MP Pat McFadden raised a number of examples of when Libor-fixing had been raised in the press, including references in the Financial Services Authority (FSA) report.

Mr McFadden said Barclays "was up to its armpits in dishonest activity" in the year running up to the phonecall - and said it was hard to believe Mr del Missier was unaware it was occurring.

Mr del Missier, who was separately investigated by the FSA and cleared of any wrongdoing, said: "The fact that there were control breakdowns is unacceptable. That's why we're here and I deeply regret that."

Asked if he was the "fall guy" for Mr Diamond, he said: "I don't think I'm acting as a fall guy. I've resigned my position with the bank, for the good of the bank. I'm not the fall guy for anything."

He said he and Mr Diamond were "professional friends" but did not "socialise very often".

Asked if he can understand why some hold the view that there is a conspiracy among Barclays' top executives, Mr del Missier said: "I can understand why there is resentment towards Barclays and the banks."