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The London Interbank Offered Rate (LIBOR) Scandal

Last week, Barclays paid a record £290 million fine after admitting manipulating a key international interest rate used to set borrowing costs for millions of businesses, consumers and investors.

 
PRLog - July 3, 2012 - CENTRAL LONDON, U.K. -- RBS and Lloyds are among other banks also facing investigation over their role in fixing the rate, known as Libor.

Commenting on the LIBOR scandal, Dr Pete Hahn, Cass Business School said:
“Are we missing the real message with LIBOR?  Yes, we should relentlessly pursue those who have rigged, manipulated, and abused, but isn’t the more shocking point and critical issue the amateur and outdated basis for such a large part of the financial system.  That the London ‘interbank’ rate has been produced since 2007 without a viable interbank market is a very real systemic risk issue that should concern us all.

“The LIBOR lie just one more illustration of how technology allowed the banking system to grow much faster than its governance system could manage – derivatives followed LIBOR.  Throughout the 1990s I tried to understand wholesale banks’ loan profitability on LIBOR loans and never met a banker whose bank paid LIBOR for its funds.  LIBOR has always been fudge.

“That so much of our financial system still is priced on or relies on the LIBOR lie is frightening.  In financial market terms it is measure of another time; would any recording artist agree to be paid based on sales of vinyl today?  London needs to find a credible replacement as soon as possible, the consequences of the wider market seizing up due to a loss of agreement on LIBOR are much more catastrophic than the moral lapses at the world’s largest banks.”

Dr Hahn, Cass Business School (http://www.cass.city.ac.uk/more-about-cass/about-the-school) went on to point to five areas of failure in the system.

- A little late....the 'unacceptable' has been going on for years.  Why does such nobility/departure only occur after disclosure - years later -- and not when it occurs?  Wasn't it the boards' duty to deal with this over the years? Evidence please?  Where were those on the board with accounting, audit, or markets experience?

- The UK board process is a collective one; will this destroy the credibility of all Barclay’s directors from 2007?  If not, why not?  If it was only the Chairman, what were the rest of the board doing?  The audit committee? How conscionable was it for the remuneration committee to provide any reward to senior management while this was going on?

- Poor governance, lack of succession planning, poor remuneration planning, weak returns - investors should really be asking if shifting the chairs now makes a difference?  One of the great exposures of the financial crisis was a lack of ability for wholesale change at the board, are we still in that space?

- Clawback of pay?  Evidence of weak governance over years, how much of the millions paid to non-executive directors will be clawed back?  Somehow they still have reputations and the money.

- Poor long-term shareholders at Barclays, they look like gamblers having lost almost everything at card games moving on to even worse odds at the roulette table, yet even if they win they won't break-even - for that matter they look like many other global banks' owners.

Isn't it time to stop tinkering and have a wholesale re-think on corporate governance at banks?

Sir John Cass Business School is among the top one per cent of business schools worldwide, offering undergraduate courses (http://www.cass.city.ac.uk/courses/undergraduate), specialist Masters, MBA, Executive Education and PhD programmes (http://www.cass.city.ac.uk/courses/phd).

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