Tuesday, July 10, 2012

LIBOR update

This is NOT simply about Barclays Bank.  This is about systemic corruption.

'Critical' Bank of England emails to Barclays released


A batch of "critical" emails sent from the Bank of England deputy governor Paul Tucker to former Barclays boss Bob Diamond were released today ahead of a highly anticipated hearing on the Libor-fixing scandal.

The correspondence appears to provide further evidence of Mr Tucker's concerns over Barclays financial health at a time when the bank was accused of manipulating its Libor submissions.

In one email, Mr Tucker said he was "struck" that Barclays had issued a government-guaranteed bond with a high yield, which could be a sign that Barclays was struggling to secure funding. "That's a lot," Mr Tucker added.

Mr Diamond last week released a note of a phonecall with Mr Tucker, who will appear before the Treasury Select Committee to clear up his role in the affair later today, which ultimately led to the Bank lowering its Libor submissions.

Committee member John Mann MP, who obtained the emails under a Freedom of Information request, said the messages were "critical" and accused the Bank of stalling in handing them over.

An additional email exchange disclosed by Mr Mann confirms Sir Jeremy Heywood, the then Downing Street chief of staff, raised concerns over the high rate of Libor submissions in the UK, compared to the US.

Sir Jeremy forwarded a note from UBS to Mr Tucker, in which the Swiss bank advocates "speeding up" the gradual decline in the interbank lending rate in the emails sent in late October 2008.
The guys who understand LIBOR are simply aghast that governments aren't taking things MUCH more seriously.  Here a Brit laments the spinelessness of elected officials as evidence of a systemic cultural corruption.

John Kampfner: This is no way to hold the powerful to account

Chairs of committees need to be far more assertive at the start of sessions

It wasn't just the use of the first names. It was the smirk, that look of disdain that was most disquieting about Bob Diamond's appearance before MPs last week. The outgoing chief executive of Barclays had – for all the attempts of the broadcast media to hype the occasion in advance – nothing to fear. He knew he was not among equals.

I couldn't help laughing when TV correspondents predicted "tough questioning". Political journalists have been doing that for as long as I can remember and, unless my memory fails me, I have yet to see a single occasion when a parliamentary figure has made a single outsider squirm.

Over the past two decades prime ministers, on taking office, have announced that they want to give parliament more powers. The select committee system – so powerful in other countries – was the obvious route. Tony Blair promised to appear before the liaison committee twice a year, a group made up of chairs of all the various committees. And so he did. Each time he ran rings around them, with his jacket perched on the back of his chair and his schmaltzy smile. No matter how big the crisis of the moment, these supposedly experienced MPs never laid a finger on him.

On specific policy analysis they similarly struggle. Iraq? The Foreign Affairs Committee produced a lamentable performance in July 2003, letting the Government off the hook while berating the scientist Dr David Kelly, who later took his own life. Last summer's Culture, Media and Sport hearing on phone hacking – covered portentously by US networks – served only to give the impression that old Rupert wasn't so bad after all, particularly when he was hit by that shaving foam pie. more
So now folks in the finance business are actually talking about reform.  Just in case the rubes start greasing up the slides on the old guillotines, I guess.

Regulators move towards margin rules for derivatives

By John O'Donnell and Luke Jeffs
BRUSSELS/LONDON, July 6 | Fri Jul 6, 2012 4:00pm EDT

(Reuters) - Global regulators launched a consultation with the financial services industry on Friday to shape new rules on how much banks should set aside to cover the risk of default on uncleared derivatives deals in the $648 trillion market.

It is one of the final pieces of a sweeping reform of derivatives markets that world leaders called for by the end of 2012, after derivatives played a central role in the 2007-09 crisis, which led to the collapse of Lehman Brothers.

The proposals will affect trillions of dollars of transactions, bumping up costs for users and leaving smaller financial players out in the cold, while bolstering banks with deep pockets, industry experts said.

The Basel Committee on Banking Supervision and the International Organisation of Securities Commissions consultation aims to identify how much margin or collateral, such as cash or highly-liquid securities, a derivative trader must put by to cover risks.

Just 15 dealers - including BNP Paribas, Deutsche Bank, Goldman Sachs, HSBC, Morgan Stanley, Societe Generale, and UBS - account for more than 80 percent of trading in derivatives.

Derivative contracts like interest rate or credit default swaps are used to hedge or insure against risks such as unexpected moves in interest rates or a default by a company or country.

Most derivatives trading is between banks that typically do not post an initial margin on uncleared contracts.

The consultation paper proposes a standardised margin requirement of between 2 and 15 percent of the size of the trade, depending on the type of asset, as well as its maturity.

The aim is to cover the risks from the contract and to create a financial incentive to use a clearing house.

A clearing house creates a transparent trail for a trade and is backed by a default fund so that a transaction is completed even if one party to a deal goes bust.

The final piece in the derivatives puzzle is expected during the summer, when the Basel Committee will publish how much capital banks must have to cover their cleared derivatives contracts. Currently, no capital is set aside in many cases. more

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