The Governor of the Bank of England has launched a scathing attack on “deceitful” investment banking and called for a “real change in the culture of the industry” stretching right to the top, in the wake of the Barclays rate-fixing scandal.
Sir Mervyn King, who refused to back Barclays chief executive Bob Diamond, added that the behaviour of Barclays’ traders underlined the need to separate high street banking from casino trading operations.
“What I hope is that everyone now understands that something went very wrong with the UK banking industry and we now need to put it right,” he said. “From excessive levels of compensation, to shoddy treatment of customers, to deceitful manipulation of one of the most important interest rates.
“We can see that we need a real change in the culture of the industry. And that will require two things, one is leadership of an unusually high order and [the other is] changes to the structure of the industry.”Regular readers know that sunlight is the best disinfectant.
If you want to fundamentally change the culture of the industry, the only way to do that is by letting sunshine into all the opaque corners of finance.
Mervyn King and the BoE could start by requiring the banks to disclose all of their current asset, liability and off-balance sheet exposure details.
How could he do this? By making this disclosure a requirement of any bank if it is to be eligible to access the Bank of England for liquidity support.
As a practical matter, there are no laws that prevent the banks from providing ultra transparency. I am fully aware of the need to protect borrower privacy and providing ultra transparency is not inconsistent with protecting borrower privacy.
Rather than leave it up to policymakers to take action that may not have any impact (it is far from clear that ring-fencing would have prevented the Libor scandal), it is time for Mr. King to take action to bring about the change in behavior he would like to see.