If there were any remaining doubts as to the potential scale of the Libor scandal, then the email exchange between the Governor of the Bank of England and the then-Chairman of the Federal Reserve Bank of New York must surely dispel them. Barclays' manipulation of its rate submissions was bad enough; even worse that a slew of other banks are also implicated and are still under investigation. Now it appears not only that Barclays admitted it was dissembling to New York Fed officials in the spring of 2008, but that Tim Geithner alerted Sir Mervyn King to possible abuses of the Libor system not long after. The revelations add a new dimension to the affair, dragging the regulatory establishment back into a mess that it had, thus far, successfully dodged.
The New York Fed will no doubt now face questions in Washington. On this side of the Atlantic, the Bank of England's response to the Geithner emails amounted to little more than a claim that the concerns had been passed on to the British Banking Association, which oversees Libor. Attempts to pass the buck will not suffice. At the Treasury committee earlier this week, Deputy Governor Paul Tucker defended himself against suspicions of collusion with Barclays. Now it is Sir Mervyn who must explain himself.
Against such a background, it is hardly auspicious for the parliamentary inquiry set up to investigate the Libor scandal to be mired in political backbiting before the full list of participants is even released.
It would be a mistake to overplay the significance of MPs John Mann and Andrea Leadsom being left out of the line-up. True, both won plaudits for their performance on the Treasury committee in recent weeks. But talk of a conspiracy to select only the compliant is far-fetched. Mr Mann, for all his showmanship, has no particular qualification. Although the case against Ms Leadsom is harder to make – and the Westminster whispers are of retribution for crossing the Chancellor – even her background in finance did not make her so effective as to be indispensable. For all Mr Mann's very public accusations of "whitewash", the fracas looks too much like sour grapes to be convincing.
Even so, there is still a danger here. Whether justified or not, such a hue and cry threatens to undermine the credibility of the investigation before it even starts. Neither does the confusion end there. Superficially at least, the inquiry's newly minted powers to engage a QC and question witnesses under oath may add to the authority of proceedings, particularly given the criticisms of MPs' efforts to pin down Bob Diamond. But there are wider issues here, too.
In the wake of a number of increasingly high-profile select committee inquiries – on phone hacking, for example – the shift to more legally rigorous, US Senate-style hearings may seem a natural progression. But the new precedent has been set out of expediency, to placate advocates of a judicial inquiry. Not only are any number of thorny questions thrown up, not least regarding the separate roles of the legislature and the judiciary. The banking panel itself looks worryingly like a hastily convened hybrid that satisfies no one. This newspaper backed calls for an independent, judge-led investigation into the Libor scandal. Given recent developments, the argument is as strong as ever.
All is not lost. The inclusion of some heavyweight peers – Lord Lamont, perhaps, or Lord Lawson – might help; the extra legal oomph may, for all its disquieting implications, be made to work. We must hope so. Until now, for all the ire against the banks, there have been few specifics to grab hold of. Libor may prove to be the thread that leads to the heart of the labyrinth. And it is no longer just the banks on the hook, but also the Bank of England. If there is an opportunity, at last, to apportion some responsibility for the financial crisis, it must not be squandered.