Coppola Comment

Since I wrote my post about the Bank of England's alleged manipulation of Libor before and during the financial crisis, something of a witch hunt seems to have developed. Certain people with axes to grind have jumped on the bandwagon set in motion by the BBC's Andy Verity and are aggressively promoting their view that the Bank of England's behaviour was fraudulent. Their argument is that the Bank of England has no business attempting to influence market rates, that those at the Bank who did this should be brought to justice just as traders who rigged Libor  have been, and that businesses, households and public sector bodies that lost money when the Bank of England "talked down" Libor should be compensated. This is arrant nonsense. Influencing market rates is what central banks do . It is called monetary policy, and it is the means by which they control inflation. If central banks could not legally influence market rates, monetary policy as we know it would

Nearly five years ago, the former CEO of Barclays Bank, Bob Diamond, defended himself against accusations that on his watch, Barclays had deliberately falsified Libor submissions. To no avail: after widespread adverse press coverage, Diamond resigned. Was this at the instigation of the Governor of the Bank of England and the head of the FSA? We will probably never know. But events yesterday make not only Diamond's resignation, but also the prosecution and jailing of traders and Libor submitters from Barclays and other banks, look distinctly odd. The BBC's Andy Verity has revealed the existence of a recording which appears to indicate that the Bank of England and the Treasury pressured banks to "lowball" their Libor submissions during the financial crisis. According to Verity, the conversation, between a junior Libor submitter (who was subsequently jailed) and his manager, ran like this: In the recording, a senior Barclays manager, Mark Dearlove, instructs Libor

We have become used to tales of banks breaking rules, evading regulation, rigging rates and being fined eye-watering amounts of money when caught. But now their ranks have been joined by an automobile manufacturer. The German giant Volkswagen has been caught rigging the results of emission tests on diesel automobiles.  The emission tests are designed to ensure that new automobiles meet stringent anti-pollution requirements. America’s love affair with automobiles means that air quality can be a problem, particularly in cities. The Environmental Protection Agency therefore places limits on the toxic emissions of automobiles to prevent air quality deteriorating to the point where it threatens human health and the environment.  But this depends on automobile manufacturers cooperating. And Volkswagen, the largest seller of diesel automobiles in the US, decided that emissions regulations could be optional for its products..... Read on here (Forbes). Polemic Paine came to similar con

I've decided I don't like Lloyds Banking Group*. It presents itself as this pure retail bank that would never behave in such a dastardly manner as the universal banks with their greedy rapacious investment banking arms. But the reality is far different. LBG has just been fined a total of £218m jointly by the FCA and American regulators for rigging benchmark rates including Libor. That is the crime for which the Barclays' chief Bob Diamond lost his job. But we're all used to hearing about Libor fines now: LBG is the seventh bank to be fined (and there are more to come). The seven banks fined so far, with the amounts, are as follows (chart courtesy of the Wall Street Journal ) : OK, so LBG's fine doesn't look that bad, does it? It's the smallest fine of any of the big banks. But in this case the size of the total fine is not a good indicator of the seriousness of the offence. To find out what is really going on, we need to break it down. The fine is ma

So as expected, RBS was fined. Fined by the FSA and two US regulatory authorities . Its crimes were much the same as those committed by Barclays and considerably less than the awful behaviour of UBS. Unlike Barclays, it will not lose its CEO even though the rate-fixing continued well into 2010, which is getting on for two years into Hester's tenure. I suppose the explanation for this is that Hester had so much on his plate in those first two years that he missed this. It strikes me as rather a major omission on his part, though. The really interesting thing in this is the behaviour of one George Osborne . RBS is, of course, 83% (ish) state-owned. So as fines are paid out of income, the result is a lower return to the UK government. You could say that UK taxpayers "pay" the fines. Osborne rightly points out that as the FSA's fine is returned to the government, there is no net cost. But fines paid to overseas regulatory bodies are a different matter. And that is the

This afternoon, Paul Tucker, Deputy Governor of the Bank of England, appears before the Treasury Select Committee (TSC) to explain the Bank of England's role in the LIBOR-rigging scandal. And boy does he have some explaining to do. As Tim Worstall pointed out the other day, the Bank of England must have known that LIBOR submissions from HBOS and RBS both before and after the failure of Lehman in September 2008 were far lower than the rates they would realistically pay if they were to attempt to borrow in the interbank market. Both were shut out of the markets at the time and dependent on Emergency Liquidity Assistance (ELA) from the Bank of England.  This crisis funding was not declared to the public, and it seems that in order to keep it quiet, the Bank of England accepted much lower LIBOR submissions so that HBOS and RBS gave the impression of being solvent when they were actually at death's door. Of course, HBOS and RBS actually had no way of establishing what a realis

Following Bob Diamond's resignation this morning - forced, according to the BBC , by an unholy alliance of the Bank of England's Mervyn King and the FSA's Lord Turner - Barclays is fighting back. It has produced this statement in advance of Diamond's meeting with the Treasury Select Committee. The impression this statement gives is that Barclays feels it has been hung out to dry for manipulating a rate when they believed they were doing so under instruction from the Bank of England. And Barclays insists that other banks were submitting lower rates and that Barclays repeatedly complained to the British Bankers' Association (BBA), the Bank of England, the FSA and the Federal Reserve about this to no avail. If it's true that Barclays warned regulators that other banks were manipulating their submissions and regulators ignored the warnings, it doesn't exactly show the regulators in a good light. That's bad enough. But scroll down through the statement a

Bob Diamond, CEO of Barclays, is fighting for his career. The extent of the LIBOR -fixing scandal for which Barclays was fined by the FSA on the 27th June is still unclear: many other banks are thought to be involved - probably all of the LIBOR panel banks . Barclays was the first to admit guilt, and its fine was reduced by 30% because of this. However, the media furore since has cost Barclays far more than that: its share price dropped by over 15% after the FSA announced its findings, and there have been persistent calls for Diamond to resign. He has now been "invited" to appear before the Treasury Select Committee to explain Barclays'  behaviour. Both Diamond's acceptance letter and the FSA report identify two quite separate and distinct forms of LIBOR-fixing. The first is the more widely reported, since it concerns the behaviour of traders - who everyone loves to hate anyway - and there are some salacious emails providing evidence of traders influencing LIBO