Diamond’s fall exposes fundamental flaws in the City | Oliver Kamm
Bob Diamond’s resignation as chief executive of Barclays signals that the failings at the bank were not merely due to rogue traders. They were institutional and fundamental – both to the bank and to the workings of the City.
There is no single interest rate in the wholesale money markets. There is proxy for a benchmark rate, which is Libor. The flaw in calculating it, however, is that it depends on the banks’ own estimates of the interest rate they would pay daily on a wholesale deposit.
This was a system ripe for abuse. Barclays manipulated the rate upwards to boost its profits, on which bankers’ bonuses were calculated.
The scandal has severely damaged the reputation of the City. It suggests the banking sector is, in effect, an oligopoly operating restrictive practices.