For the City of London, the party is most
definitely over. The heady days when traders celebrated the
"successful" manipulation of key lending rates with Bollinger
champagne and bonuses belong to the past.
After the credit crisis and the bonus bonanza, British banking has been tainted by the corrupt practice of rate-rigging that could lead to criminal investigations and threaten to destroy London's reputation as a leading global financial centre.
The crisis, according to Conservative lawmaker Claire Perry, reflects a "failure of regulation, a failure of internal audit and a failure of moral compass" in the all-important British banking sector.
"I owe you big time! Come over one day after work and I'm opening a bottle of Bollinger," said one email from an external trader, thanking a Barclays trader for a rate fix, according to correspondence released by the Financial Services Authority (FSA) watchdog, which led the investigations.
"British banks are broken, but there is now an opportunity to fix what has gone wrong in the industry," George Osborne, the chancellor of the Exchequer, said Tuesday. It was high time for a "new era of responsibility" in banking.
A few hours earlier, Osborne had been instrumental in urging Bob Diamond, the chief executive of Barclays bank, to quit because of the escalating scandal over the manipulation of Libor, the global benchmark for interbank lending rates, to enhance profit.
Although the government denies any role in Diamond's decision to step down, it had become clear that the widening scandal was threatening to do irreparable harm to London's reputation, analysts said.
"There are only three things to a bank, its franchise, its customers and its reputation," former Barclays chief executive Martin Taylor said.
It appears that Diamond, a 60-year-old "quiet American" who came to banking from academia, and who has been generally credited with turning Britain's third-biggest bank into a success story, has been sacrificed to save the reputation of London as a global finance centre.
Diamond, branded the "unacceptable face of banking" by the previous Labour government at the height of the 2008 credit crisis, had become a key focus of public anger over the alleged greed and reckless lending that marked the years in the run-up to the crisis.
He was, during the years the alleged rate-rigging took place, head of Barclays Capital, the profit-spinning investment arm of the bank.
But Diamond also had his admirers: As the global financial system teetered on the brink, he conducted a daring, but profitable, takeover of the US operations of collapsed bank Lehman Brothers, catapulting Barclays into the top league of global investment banks.
He also steered clear of the 2008 government bailout of banks, choosing instead to raise large sums for recapitalization from foreign investors in Qatar, China and Singapore.
But on Tuesday, after denying any knowledge or direct involvement in the latest scandal, and refusing to heed calls for his resignation, Diamond said the "external pressure" on him to step down had reached a level that risked "damaging the bank's franchise."
"At the height of an economic crisis, we want banks to focus on lending, and not to be distracted by internal arguments," said Osborne.
With the economy in recession, the eurozone crisis hovering and the reputation of the banking sector - a vital part of the British economy - under threat, Diamond's departure was seen Tuesday as both a turning point and a possible precedent.
Osborne said he hoped it would be the "first step towards a new culture of responsibility in British banking." New legislation in the pipeline for later this year would give regulatory authorities the power to conduct criminal investigations into corrupt and fraudulent practices, he pledged.
Meanwhile, the banking community worldwide is aware that the turbulence at Barclays is only the tip of the iceberg. British and US supervisory authorities are investigating up to 20 banks in London, New York, Tokyo and Singapore on rate-fixing allegations.
Given the scandal's international dimensions, other banks were likely to follow Barclay's lead and admit irregular practices, said Perry, who demanded "criminal sanctions" against "immoral behaviour" by banks.
"I fear a precedent," said City analyst Ralph Silva, adding that the scandal of large-scale market fixing now exposed had been "a step too far."
Most Popular Stories
- Facebook, Twitter Announce Apps for Google Glass
- Will Yahoo Splurge on $1-Billion acquisition of Tumblr?
- European Car Sales up First Time in 20 Months
- 'Star Trek Into Darkness': The Return of Khan?
- Google Fiber Making an Impact
- Entrepreneurs Chase Social Media
- Exciting Night for UFC Fans
- Teen Drivers Should Be Prepared for Any Car-Related Situation
- Summer Movies Aimed at Young Men, Teen Boys
- RFD-TV launches on Charter Cable