Last week, Barclays Bank was fined a record £290 million by the Financial Services Authority (FSA) in the UK for attempting to manipulate the Libor and Euribor rates that banks lend to each other at. Whilst the FSA found evidence that Barclays had under reported the rates it was making loans at to give the impression that the bank was in better financial health than it was, there is no way that a single “rogue” bank could induce enough of a change in the rates to give its staff a financial advantage since the rates are based on average lending rates from a basket of leading financial institutions. Indeed, RBS has announced that four staff members have been dismissed for their roles in the scandal and that is likely to be the tip of the iceberg.
The UK banking sector is in the dog house because it has been found guilty of mis-selling billions of pounds worth of payment protection insurance. It has similarly been accused of mis-selling complex hedge funds which were designed to protect small businesses against rising interest rates, but in the event rates fell and customers were left footing substantially larger bills than they would have faced had they done nothing. Add to that public dismay over the financial sector and the remuneration packages that some financiers have benefited from, it was clear that action would be taken.
The government has announced that two enquiries into the scandal will take place. The first of these will consider the narrow issue of the Libor scandal whilst the second will consider the broader question of the banking sector as a full parliamentary inquiry under Andrew Tyrie, MP for Chichester. Confusingly, Mr Tyrie said that the parliamentary inquiry would be a "ring-fenced job" and was not about "trying to work out how to reform the whole banking industry". It would focus on one question "What does the Libor scandal, what does this scandal in the market, where people have made money by rigging the market, say about the standards and the corporate culture of banks?" I think many in Britain can answer that question directly, without need to reference the matter to an expensive parliamentary process.