Friday, 29 June 2012

UK: Chancellor's statement on Barclays; governance, regulation and culture in banks

The Chancellor delivered a statement in Parliament yesterday following the FSA's decision to impose its largest every fine on Barclays Bank plc in respect of its manipulation of LIBOR and EURIBOR rates: see here. Amongst other things, he said that the Government was considering whether to increase the criminal sanctions for market abuse and he also announced the publication next week of a consultation paper exploring the sanctions available against the directors of failed banks.

Barclays' chief executive, Bob Diamond, will soon appear before the House of Commons Treasury Committee.  In an open letter to the Committee's chairman, Mr Diamond offered contrition for what he referred to as behaviour "limited to a small number of people relative to the size of Barclays trading operations". That may be so but those individuals operated in a Bank the values of which were set by the board and senior management. Moreover, as the FSA decision note explains, there were clear systems and control weaknesses for which the board should accept responsibility.

Much has and will continue to be said about the culture in banks. Indeed, the Governor of the Bank of England today said that "real change" was needed. He added that this required two things: leadership of an "unusually high order" and structural changes to the industry. Is this leadership to be found amongst those currently on bank boards? Can the banks themselves be relied upon to bring about cultural change?  Does there need to be a reevaluation of the role and place of regulation within banks? Has the debate about the corporate governance of banks focussed sufficiently on organisational structures and accountability beneath the board?

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