The Blog

City of London's Reputation is the Loser in Barclays Debacle

The events of the last week have been highly damaging to the City of London. Implications that the Bank of England implicitly endorsed the manipulation of the one of the world's key interest rate indicators struck at the heart of the City's reputation as the world's leading financial centre.

The events of the last week have been highly damaging to the City of London. Implications that the Bank of England implicitly endorsed the manipulation of the one of the world's key interest rate indicators struck at the heart of the City's reputation as the world's leading financial centre.

Cheap shots aimed at the Bank of England by Barclays and government minsters past and present dishing their usual bile of erroneous facts were topped off by trite questioning by MPs from the Treasury Select Committee, more interested in their own posturing than the welfare of the City and the UK's standing in the financial world. The combination, has led commentators to question the essence on which the City built its reputation - that of trust.

Was it only me that found it bizarre to read reports that during the Treasury Select Committee hearing with Bob Diamond, politicians were tweeting and texting thoughts and availability for media interviews rather than concentrating on getting to the bottom of events concerning the Libor rate fixing? The questioning lacked bite, insight and understanding of the issues required to get to the truth and exposed the weakness of the committee. Bob Diamond obviously didn't help; he answered the questions but added little that wasn't already known.

Barclays Bank shareholders have suffered huge losses since Bob Diamond took the reins in 2005 while he lined his pockets to tune of £120 million, plus another possible £20 million for loss of office. Both he and other staff were rewarded handsomely with bonuses that lacked alignment to shareholder returns. The Times reported that 'taking into account dividend payouts and share price, a pound invested in Barclays at the end of 2005 is now worth 29 p - a figure disclosed in an embarrassing graph buried in the back of the bank's annual report. In the same period, the FTSE 100 index as a whole would have grown to £1.08 over five years. And a pound invested in one of Barclays' rivals, HSBC, would be worth a relatively respectable 78.2p.'

It is often said that regulation is not the issue, it's enforcement that matters. Protecting the City of London's reputation is surely at the heart of regulators' and the Bank of England's objective, but both appear to fallen short in their duties.

The essence of capitalism, and the risks taken to make a profit, are held in equilibrium by striking the balance between risk and reward, or fear and greed, as ultimately wrong decisions could cause the destruction of capital. In the case of the banks, the equilibrium disappeared as they were deemed 'too big to fail' and hence the appetite for risk increased. Banks should have been allowed to fail; as far from managing risk effectively, they have been allowed to spiral out of control.

At present we seem no closer to getting to the bottom of what happened and the key issue of what and who contributed to the widespread abuse of Libor is largely being ignored. The witch hunt of Bob Diamond has taken the heat, temporarily, off the other market players, but until this issue is addressed and self interest by politicians put to one side, the only winners will be financial centres in New York and the Far East grinning like Cheshire cats at the UK's ability to self harm. The City of London's long standing reputation urgently needs the truth to be known so its integrity is restored. The Bank of England needs an injection of integrity, as much as the rest of the banking industry, as surely it will be the 'old lady' who will restore order and reputation. Waiting for politicians certainly isn't an option.