IT WILL be on strictly surname-terms that Paul Tucker, deputy governor of the Bank of England, faces his interrogators on the Treasury Committee on Monday. Tucker, unlike Bob Diamond, has plenty of experience of dealing with the Committee’s MPs and knows when to defer to them. But he cannot expect an easy ride – there will be tough questions to answer on Libor, the Bank and who said what to whom.
The stakes are high for Tucker. He must give a full account of the Bank’s role in the Libor-fixing scandal and, specifically, of his own part in the now notorious conversation with Diamond in 2008 which supposedly warned of unease in Whitehall at Barclays’ high Libor rates. If he can reassure the Committee that the Bank was not trying to influence Barclays rate-setting, he will escape censure. If he cannot, he can wave goodbye to the governor’s job in June 2013.
How should Andrew Tyrie MP and his fellow Committee members approach Tucker? Having been at the Bank for over 30 years and at Sir Mervyn King’s elbow for the past three, he knows all of the institution’s foibles and its failings. He was the executive director of its Markets Division from 2002 to 2009 – the man to whom the banks turned when confidence evaporated and the capital markets froze.
The MPs could start by asking the extent to which the Bank – and specifically its dealing room, which resembles nothing so much as a investment bank’s trading floor itself – sees market trades and other activity in microscopic detail. It is certainly intimately acquainted with the money markets, the gilts market and the ebb and flow of liquidity. It would be a surprise if it did not have a similarly 360-degree view of Libor submissions, both proper and improper.
The Committee might also quiz Tucker about the Bank’s Money Markets Liaison Group, which includes representatives of all the banks, not to mention the British Bankers Association (discredited guardian of Libor) and of the Bank itself. One member – I suggest the formidable Andrea Leadsom MP – might care to ask Tucker about the September 2009 minutes of that Group, which noted “errors in the inputting of Libor submissions by banks recently”. Was that a cause for concern? Did it prompt further calls to Barclays and other banks?
MPs will doubtless want to know if Tucker expressed concerns about Libor, not only to Diamond, but also to his counterparts at the other banks. Was there a pattern of persuasion or admonishment? Were the deputy governor’s eyebrows raised or lowered in time to unwelcome adjustments in the numbers?
Finally, having covered the minutiae of Libor, perhaps the Committee – I suggest the terrier-like David Ruffley MP – might bowl a googly at Tucker: what about the alleged manipulation of other markets? Gilt-edged Market Makers (GEMMs), the arbiters of the gilts market, have claimed that artificial price spikes were created in certain gilts during the Bank’s quantitative easing £325bn buying programme. The spikes were then allegedly collapsed by unscrupulous traders to create super-discount ratios, which it is claimed obliged the Bank to purchase them. Was any of this true? Does Tucker recall this spivving of the gilts market, which was the talk of the City in the late spring of 2009? If so, did anybody try to stop it?
Finally, the MPs may want to know whether the Bank has resolved its highly ambivalent relationship with market practitioners and, indeed, their regulators. I nominate the somewhat ponderous but no-nonsense George Mudie MP for these questions: Did the Bank perhaps ignore Libor-rigging, because to address it would have raised the spectre of dabbling in regulation (anathema to Sir Mervyn)? Or did it simply regard its delicate interventions – the call to Diamond – as helping to create an orderly market out of a patently disorderly one?
How will Tucker, for so long the dependable deputy, take such a grilling? A few months ago I asked one of his most senior colleagues to sum up his character. They described Tucker as “complex”, “demanding” and “ambitious”. They also pointed the vagaries of his relationship with Sir Mervyn King. And what of his opinions as to how the Bank of England conducts its business? The answer came: “Paul Tucker has spent thirty years biting his lip”. Next week, perhaps for the first time, he has the opportunity to clear the air and speak his mind.
Dan Conaghan is author of The Bank – Inside the Bank of England (Biteback Publishing). He has worked in the City for the past 15 years, latterly in the bond market.