Does the UK financial sector serve the UK or international finance? The scandal surrounding Libor is a microcosm of that issue. If Libor is seen to be susceptible to the interests of UK financial stability, it cannot be credible as an international benchmark. In the past, many were comfortable with the idea that UK financial markets served the UK by being a fair-minded banker to the world. But its value to international finance is now being questioned. The world’s emerging economies don’t have large international financial sectors, and their domestic systems seem less crisis-prone and more fit for purpose. In the long term, the interests of international finance will prevail. This requires a less radical change in the way Libor is composed – surveys will always play a role in estimating illiquid rates – and more in the way that it is governed, ensuring independence from all interests.
Avinash Persaud is chairman of Intelligence Capital and a fellow of London Business School.
We should remember that it was a Swiss bank that was fined this week. Clearly banks and traders from all over the world were involved in manipulating Libor and British banks were just part of the filthy game. And if you think it was only Libor that was being “manipulated”, think again. There is speculation that the European and Japanese equivalents (Euribor and Tibor) have been similarly susceptible to greedy and corrupt bank traders. This scandal does not challenge London’s dominant position. But it may be the straw that breaks the camel’s back, in terms of greater oversight from regulators. Politicians may decide that this is one corruption too far, and then back their anti-bank rhetoric with real action. More regulation and greater scrutiny is coming. And any bank executive who doesn’t understand this new world order should leave now.
Louise Cooper is a financial analyst at Cooper City.