Individual responsibility or collective fault? Who to point the finger at in the LIBOR scandal
by Sam Bright
Barclays Bank has been fairly comprehensively trashed in the past couple of weeks. It’s chairman, Marcus Agius, resigned to protect the chief executive, Bob Diamond; and then temporarily un-resigned when Sir Mervyn King made clear that Mr Diamond had to go. Other executives too have taken the plunge: notably, Jerry Del Messier, the (now ex-) Chief Operating Officer.
There are, as I see it, two main difficulties involved with blaming a few senior officials at Barclays.
Firstly, the main charge thrown at Barclays door by the regulators appears to be that they were systematically uncooperative; that, rather than brazenly breaking regulatory rules, they were repeatedly pushing those rules to their very limits. Two succinct soundbites form the last week’s committee hearing set out the primary charges. According to Andrew Bailey, FSA’s head of banking regulation, there was a “culture of gaming – and gaming us”. And in the words of Sir Mervyn King, Governor of the Bank of England, “It is possible to sail close to the wind once, maybe twice or … three times – [but after] four or five times you do have to ask questions about the navigational skills of the captain on the bridge.”
There is a big difference between pushing the rules to the limits and breaking the rules themselves. By way of comparison, driving at, or slightly over, a 30mph speed limit so you can get somewhere as fast as legally possible would raise very few eyebrows; whereas doing 40mph on a busy city street would be a blatant breach of the law, and leave many bystanders hopping mad. Similarly, testing the regulator’s patience by pushing the regulations to their limits may not be ‘best behaviour’; but it is very different to knowingly and deliberately acting in breach of those regulations.
The law should be clear and capable of guiding behaviour. Generally speaking, acts done within the bounds of the law should not be criticised in the same way as blatantly illegal acts. A good example of this was Ed Miliband’s response to the ‘Jimmy Carr tax avoidance scandal’. The Labour Party leader decided that rather than condemning such legal behaviour as ‘morally wrong’, the correct response was to call for the change of a bad law. He said, “I’m not in favour of tax avoidance obviously, but I don’t think it is for politicians to lecture people about morality. I think what the politicians need to do is – if the wrong thing is happening – change the law to prevent that tax avoidance happening”.
There is an obvious analogy with Barclays. Whilst “sailing close to the wind” is (and should be) generally looked down upon in a realm where a banker’s actions may affect many others, there is an obvious problem with the regulatory regime if none of the impugned acts actually contravene any rules. That is exactly the gist of Barclays’ behaviour, if we look beyond the sole example of LIBOR underestimations. As said the FSA, Barclays sought to gain advantage through the use of complex structures which are “at the aggressive end of interpretation of the relevant rules and regulations“.
Secondly, there is a question of where responsibility should be placed for whatever nefarious acts did in fact occur. In the aftermath of conflict, the reconciliation process often involves blame being pinned on a handful of individuals, so as to exculpate the majority. This can be seen, for example, in the realm of international criminal justice: the International Criminal Court focuses on prosecuting those most responsible for crimes against humanity, rather than pursuing each individual soldier through the courts.We pin blame for the Nazi atrocities largely on a group of senior officials, such as Hitler, Goebbels, and Himmler. In Syria, we take aim primarily against Assad, whereas in reality he represents the broader ruling (Alawite) elite.
This phenomenon is not limited to international crimes. In apportioning responsibility, we tend always to want to identify specific individuals who are at fault. Following the 2010 oil spill in the Gulf of Mexico, BP’s CEO Tony Hayward was forced by public and political opinion to resign, despite no real evidence that he was any more at fault than many other employees of BP, Transocean, or Halliburton. At an altogether different level, football teams falling short of expectations tend to dismiss their manager and not their playing staff, as Andre Villas-Boas (amongst others) found out the hard way at Chelsea this year.
Similarly, perhaps, with the LIBOR scandal. There are questions as to how far responsibility can be pinned on the small band of allegedly fraudulent brothers at the top of the Barclays tree. It appears quite likely that at least neither Mr Diamond nor Mr Agius were in fact engaged in fraudulent behaviour. Rather, it is contended they allowed a culture to develop in which morally and legally dubious activities were permitted to go unpunished, or even to be celebrated with a slap on the back.
The blame for this is not solely their own. There are no indications that any real pressure was brought to bear on Barclays by either the FSA or Bank of England before the most recent furore erupted, and certainly not as regards the alleged LIBOR-fixing. This, despite the fact that Ben Bernanke yesterday stated that he could not say “with full confidence” that LIBOR is reliable, because “the British Bankers’ Association did not adopt most of the recommendations made by the New York Fed”. This relates to emails sent by the New York Fed to the Bank of England in 2007 with suggestions as to how to avoid “deliberate misreporting” of LIBOR – in response to which Paul Tucker, deputy at the Bank, said: “It did not set alarm bells ringing”. Perhaps a more finely tuned alarm is required.
After all that, whose heads should roll? Just the highest ranked at Barclays? Other candidates include, the Barclays compliance department who failed to spot anything was wrong. The regulators, who failed to regulate. Directors and employees of the many other banks soon to be dragged into this scandal. The politicians, who failed to establish a sufficiently tight regulatory regime.
Responsibility is not so easily apportioned. Causality is complex. Our desire to see some measure of punishment and retribution calls for someone, or some people, to take the blame when things go wrong. But justice does require that that punishment is fairly apportioned. At the moment, it is not clear to me that we have reached such a just conclusion. Diamond, Del Messier et al. are clearly not mere scapegoats; but it is evidently convenient to trash them, and sweep the rest under the carpet to protect the careers and reputations of many other powerful, and indeed generally very capable, individuals.