James Moore: Sir Mervyn King showed it's back to the future in banking

  • @TheIndyBusiness

It's back to the future in banking, with the return of the nod and a wink from an all powerful Bank of England when things need to get done.

Apparently it is the only way.

Sir Mervyn King, the bank’s governor, illustrated that point very nicely when he discussed the conversation he had held with Barclays chairman Marcus Agius that led to the resignation of the bank’s chief executive Bob Diamond before a hearing of the Treasury Select Committee.

“I made it clear I was not speaking for the Government and I was not speaking as a regulator. But I wanted the chairman and senior independent director (Mike Rake) to be very conscious of the concerns that the regulator had made.

“If you read the letter in April it could hardly be more clear and when I met the two it became clear that they did not understand the depths of concerns that the regulator had about the executive management.”

So Sir Mervyn had to make these concerns crystal clear to a bank whose governance structures are looking ever more shaky.

The letter Sir Mervyn was referring to was the incendiary missive sent to Mr Agius by Lord Turner, the governor of the Bank of England, lambasting Barclays for playing fast and loose with the regulator and constantly sailing “too close to the wind”.

The nature of the conversation rather worried Andrew Tyrie, the committee’s chairman and perhaps with good reason. He was concerned that if a bank boss had a “couple of bad dinners” with the regulators they might run the risk of losing their job.

That’s a bit of an exaggeration although it is true that such unfettered power would appear to be dangerous in the wrong hands. We’d certainly better hope they get the right man for Sir Mervyn’s replacement.

However, perhaps someone having such power is needed and necessary. Might such an intervention when Fred Goodwin was running around like a bull in a china shop have saved the taxpayer an awful lot of money?

Of far more concern is the methods that were used to bring the departure of Mr Diamond about which ought to have left the committee aghast.

Sir Mervyn only acted after Lord Turner had sent a very similar message to Barclays about its chief executive (but only in so many words) and instead of acting to remove Mr Diamond Mr Agius acted to remove himself, catching everyone on the hop, including his own board. Not to mention the regulatory authorities, who got the worst of all worlds - the chairman (who they liked) quitting while leaving in place a chief executive (who they wanted rid of).

Let’s also remember that all this happened a couple of days after the regulators’ findings about attempted Libor fixing at Barclays were published. The regulatory authorities, Lord Turner and Sir Mervyn (who isn’t a regulator officially but who in reality is) were only prompted to move by the scale of public outrage. So it was all done on the hop.

Lord Turner admitted as much: “Perception is important here. One of things I did say (to Mr Agius) is that they had to think in a substantive way about how to change culture and whether Bob Diamond was the appropriate person to do that. There are some cricumstances where it is reasonable to urge a board to think about scale of public reaction. I was taking into account the extreme degree of focus. I knew it was going to be a big public issue but it became a much bigger issue than I thought.”

That rather raises questions about Lord Turner’s judgement. Did he not read the FSA’s own report into what was going on. Those e-mails promising bottles of Bollinger for playing fast and loose with Libor. How could he not see the impact they would have given the low public esteem in which banking is now held as a result of the bail outs and the conduct of men like Mr Goodwin?

So let’s sum up. Lord Turner, and Sir Mervyn, wanted Bob gone. But they weren’t quite willing to order Barclays to fire him, only to make lots of broad hints. Nods and winks if you like. Barclays misinterpreted these and its chairman went. Disaster.

Firm words and broad hints but an unwillingness to say what they clearly meant leading to the worst of all worlds. As a result we have had an enormous farce.

Labour’s Pat McFadden pointed out that the US regulators were less than impressed with their UK colleagues’ topor over Libor when the issue was being raised as a potential. What on earth will they think after seeing this astonishing mess?