Ministers order Libor inquiry following bank rate scandal

The Government has ordered an independent review the workings of interbank lending rates, as Libor, following the rigging scandal has rocked the banking industry.

The review, led by independent expert, is expected begin next week and last summer, reporting back in the early autumn recommendations on how to change the process setting the interbank lending rate.

One possible outcome could see the rate fall the auspices of the Bank of England or the city regulator, to improve independence, than the British Bankers' Association (BBA), it currently lies.

Separately, the BBA has been its own review into the future of Libor, was due to report by the end of July. It is unclear this assessment will now fall by the wayside or feed the new rate review.

Any changes suggested the system following the review could be place as early as next year, as ministers still have time to amend the Financial Services Bill going parliament.

The Libor review comes Bob Diamond, the chief executive of Barclays, has been asked to appear the Treasury Select Committee on Wednesday.

Mr Diamond, is fighting for his survival, is expected to evidence to MPs about Barclays’ attempts to rig Libor in the midst a public and political outcry.

He was reported to told City analysts he had intention of resigning despite the growing scandal Libor manipulation.

Barclays facing calls from investors to launch an independent inquiry after it was by £290m of fines over attempts to manipulate the bank borrowing .

Andrew Tyrie, chairman of the Treasury Select Committee, said the rate-rigging scandal is the " damaging scam" in modern history, has tarnished Britain's financial services industry further.

He said: "The public's trust banks has been further eroded. Restoring the reputational damage must begin immediately.

“Parliament and the public need to know what went and whether the perpetrators have been rooted . We also need to be given confidence that this has been right."

Separately, the Government is expected to look the subject of professional banking qualifications in the UK to explore they fully equip bankers for the tasks they get involved , in a further attempt to rebuild the reputation of tarnished industry.

News of the Libor review as Stephen Hester, the chief executive of Royal Bank of Scotland, said he would waive his bonus this year following the computer systems failure caused disruption to millions of its customers.

Mr Hester agreed to give a bonus potentially £2m in light of the computer glitch that has caused misery millions of the lender’s customers.

the close of what Mr Hester described as week of “high emotion” for the banking industry, the RBS chief confirmed the lender had been drawn the Libor-rigging scandal that enveloped Barclays.

In an interview the BBC on Friday night, Mr Hester, who joined RBS three-and-a-half years , said the banking industry "almost got separated society" and that its culture needs a massive overhaul.

"People thought they were masters the universe when they should have servants of the customer," he said.

"These issues are illustrative a culture in banking that before the crisis to the wrong place, and I came out of another industry back banking three and a half years ago, and my mission is change RBS for the better, physically and culturally."

the interest-rate swap mis-selling scandal at RBS and other banks, Mr Hester said: "I can certainly understand we're in an environment of high emotion around financial services people rightly are disappointed about a number of aspects of banks."

Sir Mervyn King, Governor of Bank of England, has called a reform of the way the rate is calculated in order to stamp rigging.

In future, Libor should be based on “actual transactions” than submissions from banks, he said.


Adapted from: The Telegraph, June 30, 2012.