Outlook So it's official. The Governor of the Bank of England does indeed have more power than God, at least when it comes to London's financial centre. Even though he's not (officially) a regulator and didn't know there was anything wrong with Libor for ages.
The Financial Services Authority's top brass was screaming for change at Barclays for months, but to no avail. One quiet word from Sir Mervyn King in the ear of the Barclays chairman Marcus Agius, however, and the job was done. The era of Bob Diamond as chief executive was over.
That sort of apparently unfettered power frightens people. It certainly scared Andrew Tyrie, the chairman of the Treasury Select Committee, particularly when Sir Mervyn admitted that he didn't discuss what he planned to say to Mr Agius with the Bank's Court or with anyone much beyond Lord Turner and a couple of very senior colleagues.
Mr Tyrie won't be alone. The pro-business lobby will be spitting tacks about the "dangerous development" of a central bank being free to hire and fire the bosses of private institutions at will. "This should be a matter for the board and for shareholders," they will huff and puff.
Such an argument is quite wrong, even delusional.
Banks are no ordinary private-sector institutions. They operate under a de facto state guarantee. Even now, after a swath of regulatory reforms and reams of new rules, the prospect of a giant or even a medium-sized bank failing stops watchdogs from sleeping at night. It probably ought to stop us from sleeping too. Because it is very real.
So it won't be allowed. If a bank in future finds itself in a similar place to that in which Royal Bank of Scotland found itself in 2008, it will run cap in hand to the taxpayer. And the taxpayer will cough up.
Banks hold more capital now. They have been told to ring-fence their retail operations. A few limits have even been placed on the casino. But it doesn't alter the underlying issue. As Larry Kotlikoff (one of Sir Mervyn's favourite economists) has pointed out, it might only take a relatively small adjustment to gilt yields to tip the whole sector over the precipice again.
Given these facts, it is only right that regulators should be able to exercise veto power on appointments and have the power to terminate appointments that go wrong. Ask yourself this question: would we be in quite the mess we are in now if the watchdogs had been more assertive when a certain Fred Goodwin was driving RBS off a cliff?
Barclays' own governance arrangements certainly weren't up to the job of reining in Mr Diamond. Lord Turner, the chairman of the Financial Services Authority, couldn't have been much clearer about his concerns in a letter he sent (and which has since been published) to Mr Agius in April. Yet it only merited a relatively short discussion at Barclays board. No wonder the board was criticised as being "in denial" yesterday. Barclays governance structures have been exposed as deeply deficient.
But nor should Lord Turner escape criticism. He clearly wanted Mr Diamond gone but despite the fact that he knew Barclays board wasn't hearing what he wanted them to hear, he wasn't willing to say what he needed to in terms they couldn't help but understand.
It is hard to escape the conclusion that he lacked the guts. Instead, he relied upon hints – broad ones, it's true – but hints nonetheless, calling for a change in culture but explicitly leaving it to the board to decide how that change should be effected. Their decision was to leave it in the hands of Mr Diamond, while Mr Agius (whom the FSA would have preferred to remain in place) felt that the implication was that he should resign. Such miscommunication is more appropriate to the West End stage and its farces than it is to the serious business of regulating an enormous bank.
It is not the apparent power of the regulators that should worry us. It is their cowardice and the contortions they were performing to avoid using their power when they needed to.
Perhaps this will change with the Bank of England once again assuming real (rather than informal) regulatory powers. If it doesn't, London's tattered reputation as a financial centre may end up frayed beyond repair.