Barclays Banks - A Whitehall whodunit
- 4 July 2012
- From the section UK Politics
Which senior Whitehall figure told the Bank of England to tell Barclays that they should get their LIBOR - or inter bank lending interest rate - down? That's the whodunit which is absorbing Westminster.
The crime - if it ever happened - occurred in 2008 in the midst of the banking crisis. The evidence for it is a note, made at the time, by Bob Diamond, the banker formerly known as the chief executive of Barclays. It is only one man's account of one side of a conversation but what's at stake is something more valuable than money - reputation.
We have to start by remembering that there were good reasons for the Bank of England and the government to worry about a high LIBOR rate at the time since it was a symptom of the credit crunch - ie the disappearance of inter-bank lending. This was robbing businesses of the money they needed to stay afloat, let alone expand.
Indeed the very day after this memo in October 2008 the chancellor was urging banks to lend more of the billions pumped into the system out to businesses
There were also good reasons to worry specifically about Barclays' LIBOR rate since it was a bank which had chosen not to be bailed out by the taxpayer and the fear was that it could collapse as RBS had.
The former Chancellor Alastair Darling has expressed astonishment that anyone in the Bank of England or the Treasury would have been stupid enough to tell Barclays to rig the rate.
Lord Myners, his deputy, has said that he had no discussion about the "LIBOR rate setting process" and didn't speak to the Bank of England's Paul Tucker about it. He said, pointedly, that he didn't fall into "the category of people who had no recollection of" - a clear reference to Gordon Brown's City fixit woman Shriti Vadera who was resented at the Treasury.
Vadera says she cannot recall speaking to anyone at the Bank about the rate but she did talk with bankers about a policy change (altering the price of the government's Credit Guarantee Scheme as I wrote yesterday) to get the LIBOR rate down overall. That, though, is very different from urging anyone to rig a particular rate.
That leaves a question as to whether Treasury officials expressed their concern about Barclays' high LIBOR rates in their conversations with the Bank of England. To count as "senior" - the word used in the Diamond memo - that would have to mean a top official such as Sir Nicholas Macpherson, the Permanent Secretary at the Treasury.
"What about Ed Balls?" cry the Tories. After all, they say, he used to be Gordon Brown's chief economic adviser at the Treasury, the City Minister and, even after he became Children's Secretary, chatted to him about economic policy.
Balls tells me that he never had a conversation about LIBOR with anyone in government or outside it and the idea he would have spoken to the Bank of England about it when he was running the country's schools was absurd.
So is there any evidence against him? The stream of Conservative tweets, press briefings and quotes talk simply of him having "questions to answer".
Today, under cross examination by MPs, Bob Diamond may reveal more about his call with Paul Tucker, the man from the Bank of England who said senior Whitehall figures were pressurising him.
Tucker, when we hear from him, may tell us more about who it was in Whitehall. It may turn out that no one ever told Barclays to rig its rate but that an atmosphere was created in which the message was received - "Who will rid me of this troublesome rate?"
This whodunit matters and the inquiry into it - whatever form it takes - will reveal a lot about the way power works in Britain.
Never forget, though, that part of what is fuelling it is the desire of the Tories and, in particular, the chancellor's cheerleaders to remind people of the mistakes made under Gordon Brown's government and to try to destroy Labour's economic credibility.
For years the Conservatives used the Winter of Discontent to warn voters not to trust Labour again. they hope to do the same with debt, the banks and that obscure rate few of us understand, called LIBOR.