The board of Barclays was in a “state of denial” about the concerns of Britain’s banking regulators about its management under Bob Diamond, the Governor of the Bank of England said today.
Sir Mervyn King said that Barclays’ board had been “deeply reluctant” to face up to concerns of the Financial Services Authority.
As a result he decided to call in the chairman of the bank directly and make it clear to him that Mr Diamond had to go.
“It is possible to sail close to the wind once but when it becomes four or five times you have to ask questions of the navigation skills of the captain on the bridge,” Sir Mervyn told MPs on the Treasury Select Committee.
“The Barclays board were deeply reluctant to face up to concerns that Lord Turner (head of the Financial Services Authority) had expressed. Senior independent directors did not appear to be fully aware of the loss of confidence of the regulators.”
Earlier Lord Turner told the committee that prior to Sir Mervyn’s conversation he thought he had made it clear to the Barclays that the FSA thought Mr Diamond had to leave.
“The conversation I had with Barclays was about the position of Bob Diamond, the brand of Bob Diamond,” he said.
“I have no doubt that we had conversation on whether Bob Diamond was the man to lead the change needed [at Barclays]. I thought the most likely result was that Bob Diamond would resign.”
But instead it was not Mr Diamond who announced his resignation but the Barclays’ chairman Sir Marcus Agius – a fact he, Sir Mervyn and George Osborne only leant by reading internet news sites.
Sir Mervyn said he was so concerned that it was not the Mr Diamond who had resigned that he called in Sir Marcus to express his strong opinion the board needed to think again.
“On Sunday late afternoon, early evening I discovered that the chairman had resigned from the BBC website. The firm was now in a very difficult position. Any new chairman would either have to demand the resignation of the chief executive as a condition of taking the job or they would have to buy in to the chief executive.
“(If they had done that) who knows what might be revealed over the next year. They had not thought through the consequences of this.”
He denied that his intervention had been like putting a gun to the head of the bank but said he felt it was important to make clear his and the FSA’s reservations about Mr Diamond’s continued employment.
Sir Mervyn also claimed he was not aware of deliberate rate-rigging until the full scale of the Barclays scandal came to light.
He said he had not considered that even very small changes in Libor could be used to give an advantage to bankers on individual transactions.
“I think there are similarities with betting in cricket, because nobody saw it. It wasn't a whole game being fixed but three or four no balls,” he said.
His comments come after news last week that Sir Mervyn discussed concerns over Libor - the interbank rate at the heart of the scandal - with New York Federal Reserve president Timothy Geithner at least four years ago, raising questions over why the Bank had not acted sooner to stamp out rate-fixing.
Sir Mervyn said he shared worries with Mr Geithner over the governance of Libor, but there was no evidence at the time of "wrong-doing".Reuse content