REGULATORS grossly overreached themselves by forcing Bob Diamond out of the top job at Barclays, top backbench MP Andrew Tyrie declared yesterday, accusing Sir Mervyn King and Lord Turner of “handing the chairman a revolver to shoot the chief executive” at the troubled bank.
MPs on the Treasury select committee (TSC) also dealt a blow to Paul Tucker’s chances of becoming the next governor of the Bank of England by forcing him to admit he missed signs that Libor was being manipulated, while newly released emails reveal the deputy governor’s warm relationship with Diamond.
And in the US, Federal Reserve chairman Ben Bernanke called Libor “fatally flawed” and said he would continue to push for changes to the way the interbank rate is governed.
Committee chairman Tyrie said he believes the Barclays debacle shows “yet another gaping hole in governance of the Bank of England” which allowed regulators to “hand the chairman a revolver to shoot the chief executive” at the troubled bank.
“We do need urgently some governance put in place both in the FSA and the Bank of England to offer some protection against arbitrary meetings of this type taking place,” he said.
But the regulators hit back, arguing that they were acting in the interests of financial stability, and Barclays’ own shareholders.
“If Diamond had stayed on, given the extensiveness of the calls for his resignation from politicians and the press, I strongly suspect that would have been to the disadvantage of the shareholders,” said the FSA’s Turner.
“I don’t see a problem with the governor of the Bank of England choosing to see the chairman or chief executive if they want, in order to express a point of view; a point of view which we had discussed in the course of the afternoon and what we agreed on.”
MPs turned up the heat on deputy governor Tucker, asking how he acted on US tip-offs on the manipulation.
“It didn’t set off any dishonesty alarm bells,” he said, explaining that he and the Fed’s Bill Dudley worried more about confidence in the market when trading rates were higher than dollar Libor rates.
And emails obtained by Labour MP John Mann under the Freedom of Information act hint at a closer relationship between Tucker and former Barclays chief executive than either man had previously implied.
One, sent to Diamond in May 2008, suggests Tucker had talked to bosses at both HSBC and RBS about Libor. It read: “Have spoken to hsbc and rbs, stuart and johnny. Sense similar across all three of you. I encouraged contact amongst Mark Dearlove peer group.”
Johnny Cameron was head of RBS’s investment bank at the time, while Stuart Gulliver is chief executive of HSBC. Barclays’ Mark Dearlove, who led the money markets desk in 2008, was the man to whom former executive Jerry del Missier said he had passed the order to lower Libor.
Meanwhile Bernanke called for more reforms to the way Libor is set.
“We are advocating reforms to the Libor process,” he told a Senate hearing. But “it is constructed by private organisation in the UK, and so our direct ability to influence it is limited.”