Tuesday, July 3, 2012

Barclays, Bank of England spat highlights need for requiring ultra transparency

The more that comes out about the conversation between Barclays' Bob Diamond and the Bank of England's Paul Tucker the clearer it is that all banks should be required to provide ultra transparency and disclose on an on-going basis their current asset, liability and off-balance sheet exposure details.

Had Barclays been providing ultra transparency in 2008, its Libor submissions would have been based on actual trades that were disclosed to the market.

As a result, there would have been no need for a phone call between the Bank of England and Barclays to discuss Barclays Libor submissions.

However, Barclays wasn't required to provide ultra transparency, it didn't base its Libor submissions off of actual trades and the Bank of England did call to discuss Barclays submissions.

As reported by the Wall Street Journal,
At the height of the financial crisis, Libor was being closely watched as a barometer of U.K. banks' health. 
By Mr. Diamond's account, Mr. Tucker told him that he had "received calls from a number of senior figures within Whitehall to question why Barclays was always toward the top end of the Libor pricing." 
After Mr. Diamond explained the bank's pricing, he says Mr. Tucker reiterated that the calls he was receiving from the government were "senior" and added that "while [Mr. Tucker] was certain that we did not need advice, that it did not always need to be the case that we appeared as high as we have recently." 
According to the Barclays documents submitted on Tuesday, Mr. Diamond didn't believe he received an instruction from Mr. Tucker. However Jerry del Missier, then president of Baclays' investment bank, concluded that an instruction had been passed down from the Bank of England not to keep Barclays' rate as high.
What is clear from Mr. Diamond's account is that a relationship between bank and regulator that is cloaked in opacity has the potential for significant misunderstandings.

Misunderstandings that could be completely avoided if banks were required to provide ultra transparency.

An excerpt from the Telegraph Live further confirms that ultra transparency must be required today.
13.57 Lindsay Thomas, a former director at the FSA, said suggestions that the Bank of England had condoned the rate-rigging practice would have been "a Rubicon" that would have led Sir Mervyn King to demand Bob Diamond was forced to quit.
He told BBC Radio 4's World at One:
They would have been livid. I would think that the Governor would have called up Barclays and made it plain that that's what they expected to happen. 
"I think there was something behind that anyway in the remarks of the Governor in talking about the situation requiring exceptional leadership which by evidence had not been given in the past. 
"But I think it all really came together to say that if Barclays didn't, in effect, get rid of Diamond that the working relationship between the Bank of England and the FSA and Barclays would have irretrievably broken down. 
"A major clearing bank just can't live with that. 

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