The elusive truth about Barclays’ lie

 
City of London skyline How many liars are there in the City of London?

Aside from the forensic analysis about who said what to whom, there is a very simple question at the heart of the furore of Barclays' involvement in the LIBOR-rigging scandal: is it ever acceptable to lie?

At the height of the banking crisis in 2007 to 2008, I as an enquiring journalist was routinely lied to by bankers: they claimed they were able to borrow from conventional sources relatively easily and were not on the brink of financial collapse. In the case of HBOS and Royal Bank of Scotland, we subsequently learned this was untrue; in the autumn of 2008, they became dependent on massive emergency loans from the Bank of England, which led directly to them being partly nationalised.

There was an appalling climate of fear, in which no bank felt completely confident of survival.

Now in this climate, Barclays was among the least trusted of the banks. Investors, for years, feared they didn't properly understand how its complex investment bank earned its profits. Ministers and officials felt it was arrogant and opaque as an institution.

I know this because it was one of the big talking points in my milieu.

It was this lack of trust which meant that Barclays had to pay more to borrow than other banks: for any creditor, trust in the borrower is probably more important than anything else; and any uneasiness about the strength of the debtor translates into the debtor paying a higher interest rate.

Barclays ex-boss Bob Diamond is 'sorry and angry'

Now I recall talking about the relatively high rate Barclays was paying to borrow to people in government and Whitehall. It was both intriguing and disturbing to them.

As it happens, Bob Diamond's note of his conversation on October 29 2008 with Paul Tucker, deputy governor of the Bank of England, implies he was having similar conversations with the ministers and officials of SW1.

Many would say that the proper lesson for Barclays from these funding tensions was that it needed to regain the trust of the market - by perhaps simplifying its operations and making them more transparent.

What we learned from the regulators' verdict on Barclays last week was that in fact its response was to lie about its borrowing costs: it understated them to try to reassure the market.

Barclays' defence is that it was dreadfully unfair that its perceived borrowing costs were higher than other banks. And it is convinced that many of these banks were even bigger liars than it was about what they were paying to borrow.

It also points out that in practice its balance sheet, its finances, were in fact stronger than many of these other banks: its creditors were wrong, it would say, to have so little trust in it.

So was its lie about what it was paying to borrow justified - especially if the survival of the bank was at stake? And if Paul Tucker at the Bank of England encouraged Barclays to lie, as is implied by Diamond's memo, would he have been justified in doing so?

As it happens, a number of senior figures in the City who are unconnected to Barclays think this lying was the right thing to do in the circumstances. They think Mr Tucker encouraged Barclays to lie and they applaud him for doing so.

You might well say that is evidence of a cancerous moral relativism at the heart of the City. Or you might applaud their common sense realism.

We need Paul Tucker's side of the story to evaluate whether he did indeed nudge Mr Diamond to a policy of economy with the truth on the bank's borrowing costs - and, if he did so, whether he was responding to pressure from what Mr Diamond calls "senior figures in Whitehall".

But here's a question for you: was Barclays making a small lie for a bigger purpose; or was its instinct to lie at the very heart of the problem, the reason why it was so little trusted in markets and was having to pay more than others to borrow?

 
Robert Peston, economics editor Article written by Robert Peston Robert Peston Economics editor

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  • Comment number 531.

    All this user's posts have been removed.Why?

  • rate this
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    Comment number 530.

    Diamonds aren't forever.

  • rate this
    +1

    Comment number 529.

    Bankers, Islamic terrorists, and the bloody Euro...Welocme to The New World Order!

  • Comment number 528.

    All this user's posts have been removed.Why?

  • rate this
    +1

    Comment number 527.

    Its one thing to lie to a BBC journalist - so what. But a market that is built on lies with come back and bite. The London banking industry has to be such that it is trusted. Root out the systemic liars in banking and they need to be seen to be punished. Market integrity is everything.

  • rate this
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    Comment number 526.

    You're talking to fTP. Good luck!

    503 I believe you said this in respect of well me::

    "He knows all there is about economic values (which is way too complicated for us little people), but gets confused by discussion of social values.

    No price = no value."

    Pracie what you preach. Mmm

  • Comment number 525.

    All this user's posts have been removed.Why?

  • rate this
    0

    Comment number 524.

    507 UD perhaps 90% is shared - writing it down could be a challenge. Perhaps we can agree on the concept of the greater good of the greater number. However there are more ways of achieving that than there are waves in the sea. No political entity or movement has a monoply of morality. The two main parties are about the representation of interest groups. Not much morality in that.

  • rate this
    -1

    Comment number 523.

    506 - Whatever your view on immigration govt is limited by EEC/EEA membership. Moribund is scurrying because his focus groups have identified that labours record is a turn off for the core vote. You are right that snooty is afraid of city reform, but moribund wont tackle the public sector. Cameron is benefit bashing because its popular especially with the aspirational working class.

  • Comment number 522.

    All this user's posts have been removed.Why?

  • rate this
    +1

    Comment number 521.

    498. edward

    Why on earth could Bob Diamond not have been asked some simple straight forward questions
    ------------
    Same reason Willy Hague didn't ask Lord Ashcroft whether or not he had become domiciled in the UK?

  • rate this
    +1

    Comment number 520.

    RP, You've been thrown off the scent by Robert Diamond. The Libor submissions had no bearing on the capital raising efforts of Barclays or whether it would be nationalised. The real question is whether Diamond will be allowed to keep the £200m+ he has been carrying out of the building in bags over the years. If the inept MP questioning is anything to go by he will be free and over the horizon.

  • rate this
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    Comment number 519.

    510.United Dreamer

    "...Its...rebranded...a privilege granted from the masters table..."

    ===

    Yes: the modern downtrodden grovellers at the mill gate get all sorts rammed down their throats, by the tame preachers for the elite. The message is much as that of the C19th Methodists: to each his place allotted by Providence. There is Method in the unjust Madness of the world. Trust us.

  • rate this
    +1

    Comment number 518.

    Moral issue or not there is also one of 'good business' - as opposed to short term profiteering. The reckless behaviour of Barclays & other UK banks could result in total loss of international confidence in London as a financial centre- we may witness its decline & collapse. In the long term this might be a good thing for the UK. In the short term we will see a decade or more of severe recession.

  • rate this
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    Comment number 517.

    @507.United Dreamer

    Whilst I personally agree with you, I would have to argue that the issue with banking isn't whether it's right or wrong, or good or bad. It's whether it is wanted within the industry.

    I think it isn't because it destroys trust which is fundamental to a successful banking industry.

    So - design it out of the industry.

  • rate this
    +1

    Comment number 516.

    #509Natalie

    The banks also get their chums in the rating agencies to value their assets. Property seized, intellectual property rights, their own buildings etc.

    All this lot gets aggregated with the deposits they take then all multiplied up as described in Basel 2 so they can lend this out multiple times. At interest.

    And yet they still fiddle!

    Greedy or what?

    All for the common good they say

  • rate this
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    Comment number 515.

    interesting to see if Mr Tucker becomes the new teflon "king".. all that complaining about a lack of tools to maintain financial stability in 2007/8 when they had "Libor Fixing" all along! A knighthood beckons.

  • rate this
    +1

    Comment number 514.

    Why do we bother to vote for Mp's when they do every thing to hide stuff from us and tell us any thing but the truth this is going to be the same as any other Mp's inquiry the bear minimum will come out to the public
    if you look at Mp's expenses that was just a gloss job were some rules were changed but not many went to jail over that and they still control who is sent to explain there expenses

  • rate this
    -2

    Comment number 513.

    feel compelled to comment on this.

    Mr Peston - as a reporting, please exercise your professional responsibiliyt and get your facts right. Surely credit rating plays a role in driving cost of funding. Not trust.

  • rate this
    0

    Comment number 512.

    511.You
    18 Minutes ago
    "The Barclays Board consists of the Chairman, eight non-executive Directors and four executive Directors."


    Ok, that was 2000. By 2011 they seem to have 1 Chairman, 8 non-executives, 1 independent, a CEO and a Finance Director.

    Did they still have the same induction program?

 

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