The Bank of England (BOE) and the Financial Services Authority (FSA) were heavily criticised by a group of MPs today for their failure to prevent Barclays manipulating a key interest rate at the height of the 2008 financial crisis.
The Treasury Select Committee's report into the Libor fixing scandal said the BOE was naive to think that banks would not behave dishonestly, despite being aware that there was a danger banks may try and overstate their financial health.
"With hindsight this suggests a naivety on the part of the Bank of England," the report stated.
However, the MPs said they were more concerned with the FSA's failure to realise the manipulation, especially as the body was in charge of regulating the banks at that time.
The MPs are calling for action in a number of areas, including:
- Higher fines for firms that fail to cooperate with regulators
- The need to examine gaps in the criminal law
- A much stronger governance framework at the Bank of England.
Former Barclays CEO Bob Diamond also came under close scrutiny. The report accused Mr Diamond of submitting "highly selective" evidence when he addressed the committee last month.
It said his evidence had fallen "well short" of the standards expected by Parliament, stressing that select commitees "are entitled to expect candor and frankness from witnesses".
The committee's chairman, Andrew Tyrie, said it was apparent there had been failings both in internal monitoring and in regulatory supervision over Libor.
ITV News Reporter Ria Chatterjee reports:
– Treasury Select Committee chairman Andrew Tyrie
The sustained rigging of a crucial benchmark rate has done great damage to the UK's reputation. Public trust in banks is at an all time low.
Urgent improvements, both to the way banks are run and the way they are regulated, is needed if public and market confidence is to be restored.
The manipulation was spotted neither by the FSA [Financial Services Authority] nor the Bank of England at the time. That doesn't look good.
A Barclays spokesman said the bank would "carefully consider" the committee's report and that it recognised change is needed, "not least to restore stakeholder trust".
"That is why we have established an independent review of our business practices under Anthony Salz, and we expect that review to take full account of this report in producing its recommendations," the spokesman added.
The Treasury welcomed the "detailed and prompt report," saying the Government will study its recommendations "in depth".
– A Treasury spokesman
The manipulation of key global benchmark rates has been another example of a culture of irresponsibility within the banking system, which the Government is determined to fix as quickly as possible.
The Government has already established the Wheatley Review into Libor, which published a discussion paper last week and will produce final recommendations by the end of the summer, and any necessary legislative changes will be considered for inclusion in the Financial Services Bill or the Banking Reform Bill.