Sir Mervyn King tells MPs libor rigging was "fraud"

Sir Mervyn King the Governor of the Bank of England has appeared before the Treasury Select Committee (TSC) to face questions from MPs on what the central bank knew about the Libor scandal and its relationship with Barclays.

Sir Mervyn defended the Bank’s handling of Libor saying that the Bank of England is not responsible for regulation of markets. The governor made it clear that he believes the manipulation of Libor is “fraud” and that this could lead to criminal investigations by the Serious Fraud Office.

Sir Mervyn told MPs that he felt Barclays was in a “state of denial” about concerns that regulators in the UK had over the culture of the bank and that Barclays was reluctant to face up to concerns that the Financial Services Authority (FSA) had over the bank.

He said that he though Barclays was “sailing close to the wind” and that this raised questions over leadership at the bank.

“The Barclays board were deeply reluctant to face up to concerns that Lord Turner had expressed. Senior independent directors did not appear to be fully aware of the loss of confidence of the regulators,” said Sir Mervyn.

Sir Mervyn said that this was why he called Sir Marcus Agius, the Barclays Chairman to tell him that the bank felt Mr Diamond should resign, which he did on the following day.

Earlier the TSC had asked whether the head of the FSA, Lord Turner has warned Barclays that the FSA thought Mr Diamond should resign.

Lord Turner told MPs: “The conversation I had with Barclays was about the position of Bob Diamond, the brand of Bob Diamond.

“I have no doubt that we had conversation on whether Bob Diamond was the man to lead the change needed. I thought the most likely result was that Bob Diamond would resign.”
Both Lord Turner and Sir Mervyn expressed their surprise that it was Mr Agius rather than Mr Diamond who resigned. This prompted Sir Mervyn to intervene, call Sir Marcus and ask the Barclays board to think again.

Sir Mervyn followed the lead of deputy governor, Paul Tucker’s testimony last week that he was unaware of the full scale of Libor rate-rigging until recently.

On the review of Libor by the British Banking Association, Sir Mervyn said the review was “wholly inadequate.”

Mr Tucker was asked why the Bank did not respond effectively to the Libor warning it received from the US Federal Reserve.

He replied: “It did not set off dishonest alarm bells.”

Pressed further about deliberate misreporting, Mr Tucker said: “I’m not sure I addressed my mind to it.”

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