Leaders: Deputy Bank governor’s excuses not good enough

PAUL Tucker, deputy governor of the Bank of England, did little to boost confidence that the Bank is on top of the financial crisis still afflicting the country in his appearance before the Treasury select committee yesterday.

Widely cited as the probable successor to Sir Mervyn King as the head of the Bank, his performance contained little of the current governor’s carefully-phrased reassuring urbanity.

Mr Tucker did at least clear up some matters concerning the scandal surrounding Barclay’s manipulation of the crucial Libor inter-bank lending rate, an indicator central to the costs banks face when borrowing money in the markets and which ultimately affect mortgage interest rates.

On the key telephone call in October 2008 between himself and Bob Diamond, then chief executive of Barclays, regarding the apparently high rates Barclays submitted to the Libor rate-
setting organisation, he confessed that the Bank, unlike Mr Diamond, did not make a note of the conversation. It was at the hectic height of the crisis, he explained.

But he was clear that the advice he gave was certainly not an instruction to Barclays to lower its Libor submissions, but was rather a concern about a malfunctioning market. The senior figures in Whitehall who had been worried, he said, were certainly not ministers, but senior officials at the Cabinet Office and the Treasury, who were concerned that the rates indicated Barclays might need a government bail-out in the same way as RBS and Lloyds did.

If that was clear, the Bank’s monitoring of Libor was certainly not. Twice, Mr Tucker referred to the Libor scandal as a “cesspit” and yet it seems no stench from it ever reached his nostrils. Mr Tucker, as director of the Bank’s money market operations, was clearly the man who ought to have known. Indeed, one MP pointed out, the minutes of one Bank committee meeting chaired by Mr Tucker gave a pretty clear indication that some of those attending raised concerns that some banks were “low-balling” their estimates of their costs of borrowing in the market.

Mr Tucker agreed that with hindsight, that was a reasonable interpretation, but it was not one which appeared obvious to him at the time. He added that the minutes had been published at the time on the Bank’s website and yet no-one contacted him to point out, or demand action on, claims of Libor-rigging.

If this is a defence, it is a poor one. Mr Tucker’s job is to closely scrutinise the markets and to make sure they are functioning properly which, in this case they were not.

Mr Tucker’s further defence was that the markets were not functioning at all and that nobody really knew what was going on in them. That’s not good enough, for it indicates that the Bank’s market intelligence-gathering systems were malfunctioning too and yet, as he said, no review of them has been undertaken.

A clear case against confusion

The appearance of a second question on Alex Salmond’s referendum ballot paper now looks to be seriously in doubt. First Margo MacDonald, the independent nationalist MSP demanded a straightforward Yes/No question on independence. Now Patrick Harvie, co-convener of the Scottish Greens, who also back independence, says his party may drop its support for a multi-option referendum.

Both have raised serious questions about the advisability of a second question seeking the maximal devolution of fiscal powers to Scotland short of independence. Ms MacDonald points out that, since greater powers require the UK government to legislate at Westminster, they cannot be delivered by the Scottish government.

Mr Harvie says maximal devolution has not been clearly defined and, by implication, he does not think it is going to be. Without that clarity, it is hard to establish whether there is a meaningful mandate for such a second choice question.

If Mr Salmond’s intention is to establish a fall-back position from which he can press for more Holyrood powers under the private assumption he is not going to win the independence vote, this represents a serious setback for him. Establishing a “devo-max” position as a serious proposition requires consensus support. There now appears to be no such consensus, even among nationalists.

These developments strengthen the case for a one-question plebiscite. A strong argument against the multi-choice referendum is it could result in a confusing campaign and a very confusing result, a case now strengthened by the intervention of Ms MacDonald and Mr Harvie.