HOLDING BANKERS TO ACCOUNT A Decade of Market Manipulation, Regulatory Failures and Regulatory Reforms By Oonagh McDonald 25 [pounds sterling] Manchester University Press ISBN: 978-1-5261-1943-8
In 2012, news that the London Inter-bank Offered Rate (Libor), a benchmark interest rate widely used in the global financial system for a broad range of financial products and contracts, had been manipulated since at least the early 2000s stunned the financial community. Some estimates put the total global value of the contracts based on Libor at as much as $800 trillion.
The Financial Stability Board, an international body that monitors and makes recommendations about the global financial system, said that such manipulation posed "potentially serious systemic vulnerability and systemic risk" to the global financial system. So the revelation that this critical benchmark was rigged plunged public confidence in the banking system to new lows, shortly after the international banking crisis of 2008.
Weak control systems
Author Oonagh McDonald's account of this sorry saga anchors a timely book that looks at how the industry's reputation plunged to such lows--and what it needs to do to account for its past failures and move on.
"My aim it to show that it was possible for such price fixing to take place over so many years only because the major banks operating in the UK, the USA, Germany, Japan and Switzerland had such weak systems and controls, or worse, no systems and controls at all. Potential conflicts of interests went unrecognised for years. Compliance officers were at best ineffective and at worst collusive," she argues.
McDonald, now based in Washington, DC, is a former UK MP and was a non-executive director of the Security and Investment Board, which morphed into the Financial Services Authority in 1997. She is recognised as a world authority on financial regulations.
In order to delve into the background of the issue, McDonald begins with a history of financial regulation in the UK. She counters the traditional assertion that deregulation began apace in the 1980s, instead arguing that the government's "light-touch" regulation of the early 2000s meant that banks were ill-prepared to meet the financial crisis. The catastrophe provoked many banks to prioritise profits over security.
"In its aftermath, as the banks embarked on the slow path to recovery, making profits was essential. The traders seized that opportunity, and it may well be the case...