Comment: Old pals act fails Tucker as Carney confirmed

By MARTIN FLANAGAN
Published on 27/11/2012 00:00

IT LOOKS as if what did for Paul Tucker in his failed bid to become the new governor of the Bank of England was his bad war as regards Libor-rigging.

That and what could have been seen as his inappropriately chummy relationship with former Barclays boss, Bob Diamond, who later quit somewhat ignominiously over the Libor issue.

Just to recap. Tucker, whose promotion to his current role was announced in December 2008, received an e-mail the next day from Diamond.

“Paul, Congratulations. Well done, man. I am really, really proud of you. Talk soon. Bob.” In reply Tucker wrote: “Thanks so much Bob. You’ve been an absolute brick through this. Paul.”

It doesn’t quite bring to mind the raised eyebrows of the steward of the Old Lady of Threadneedle Street and tentative bankers under its magisterial sway. Particularly as the roof was falling in on the banking sector at that time.

George Osborne may have felt the deputy governor and youthful-looking BoE veteran had been naive at best, apparently giving Libor-fixers the benefit of the doubt in the early stages on circumstantial evidence.

And so the plum BoE appointment to succeed Sir Mervyn King next year has gone to the highly rated Canadian central bank chief, Mark Carney.

We should not be as unhappy as Tucker. Carney is globally respected, not least for the impressive way the Canadian banks avoided the worst fallout of subprime and related issues from 2007 onwards. That is a significant achievement.

Carney was surefooted throughout the crisis, and also has the advantages of not being tainted by previous associations with Britain’s uneven regulatory regime, and a fresh pair of foreign eyes on our domestic challenges. He is the best choice there was.

Banks make it easy for rogue traders

Kweku Adoboli, Yasuo Hamanaka, Jerome Keviel, Nick Leeson… wherever traders go rogue we almost invariably find that control systems at the banks they devastated were poor. This doesn’t exonerate the fraudsters, who usually turn out in the dock to be a toxic mixture of greed, arrogance, amorality and stupidity.

But it is virtually impossible to lose billions, or even hundreds of millions, of pounds if banking controls are tight, the culture is right, and the back office Achilles heel for trading malpractice is stringently monitored.

Hence, within days of Adoboli being jailed for seven years for Britain’s biggest banking fraud, the Financial Services Authority has fined his bank UBS £30 million for risk systems that the regulator has branded “seriously defective”.

Just as they were with Barings before its Leeson-triggered collapse and all the other rogue trader debacles, from Baltimore to Tokyo, Paris to Melbourne.

Of course, compared with the cataclysmic £1.4 billion of losses Adoboli visited on UBS, the Swiss banking giant will regard the £30m fine as a financial pinprick.

With each new rogue trader and shoddy risk control system brought to book, it suggests that things are only likely to change when two things happen. Firstly, an outbreak of serious ethics at senior management levels in the banking food chain, above but in touch with the daily trading.

Secondly, and more practically, frequent checks on traders’ individual books to pre-empt fraud before the sound of the stable door crashing 
shut and frantic hooves fading into the distance.