Sir Angus Grossart says Libor fixing scandal raises big banking questions

By ERIKKA ASKELAND
Published on 15/07/2012 00:00

VETERAN financier Sir Angus Grossart has weighed into 
the Libor fixing scandal and said the crisis, which is expected to exact £14 billion in fines from a number of banks, has “reinforced the argument” for separating retail and wholesale “casino” banks.

Grossart, who was vice chairman of Royal Bank of Scotland until 2005, said the debacle raised “big, fundamental questions” about the state of the global banking system. He said the current practice of setting Libor, which is overseen by the British Bankers’ Association (BBA), lacked a “valid framework”.

He insisted that he is “extremely open-minded as to what are the right configurations” of banking operations and argued that “a lot went off the rails when the 1986 deregulation, or Big Bang, in the City of London led to the creation of universal banks. Prime minister Margaret Thatcher wanted to ease restrictions on trade and break up the “old boy” networks that dominated the merchant banking trade.

But Grossart admitted he was “surprised it [Libor fixing] came out the way it did”.

He said: “I was always puzzled during the periods when the wholesale inter-bank market had virtually dried up; you had this synthetic concept of a rate. You can understand the views from those who think there should have been some precise framework of analytical perfection, and there are those somewhere in the middle.

“Regrettably, because there wasn’t enough thought given to what was the right valid framework, it [Libor-setting] was exposed to those who will cut corners – or the traders will see it as a chance to create some advantage.”

Barclays Bank was fined £290 million by regulators in the UK and the US after revealing that its traders “fixed” Libor. As a result, its top three leaders have resigned, and its former chief executive Bob Diamond waived a £20m bonus pot after a public outcry.

Several other banks on the Libor-setting panels, including RBS and Lloyds, are also involved in a number of investigations and class action lawsuits currently being undertaken around the globe.

On Friday, the government confirmed details of a parliamentary inquiry into the banking industry and Libor scandal to be chaired by Tory MP and Treasury committee chairman Andrew Tyrie.

Grossart added: “It may 
reinforce the argument for separation.

“A lot went off the rails when the Big Bang happened and Libor is a symptom of it.

“It has happened in an unexpected way – there are some big, fundamental questions.”