I’ve been reading about the latest banking shenanigans
with a certain degree of proprietorial interest. The new scandal is about LIBOR – an acronym
for London Inter-Bank Offered Rate – and my connection is that I was involved
in its creation.
Let me hasten to add that I’m not claiming credit for inventing
LIBOR (which is a calculated average, compiled for participating banks, of the
interest rate they charge each other for overnight money). Nor is there any question of admitting blame.
LIBOR is merely a number, neither heroic
nor villainous. It is, as is becoming
tiresomely habitual, the banks that are the corrupting influence.
Let me tell you how LIBOR came about, and my role in
The device was created in 1986 (incidentally, the year
of the City of London’s
emergence as a global financial centre on the back of a process of radical
deregulation, sometimes referred to as ‘Big Bang’). I was then the Managing Director in Europe of
Telerate, then a leading provider of market quotes and news, delivered on
desktop terminals, to financial institutions.
Telerate was approached by the British Bankers
Association, representing London’s leading trading institutions, with a view to
calculating and publishing, daily, their overnight interest rate for the
purpose of establishing a base from which the interest component of loans,
mortgages and commercial contracts could be calculated.
Two Telerate employees, Louise Lomax and Teddy
Boutrup, had been working on a proposal with the BBA and came to me for approval. They were understandably excited; being
selected for the task by a prestigious institution was something of a publicity
coup for Telerate, a company then in an early stage of its European expansion. It also meant that all the banks involved in
setting the rate, and every other major financial institution around the world,
would need to subscribe to Telerate – which was far smaller than its rival,
Reuters – in order to check the figure.
I readily agreed to the plan.
I can’t remember why the BBA selected Telerate. It could be that Reuters, from a position of
market dominance, had turned down the opportunity. (Some years later Reuters acquired Telerate,
and with it the services of Lomax and Boutrup – who I understand have since
been laid off – and assumed responsibility for producing LIBOR. It does to this day.)
Twenty-four years after LIBOR’s inception, Barclays
Bank, and others, are in trouble for having colluded to fix the rate to the
advantage of their trading positions.
Incriminating emails exposed the guilt of the bank executives involved.
Heads have already rolled. More tumbrels are on their way to the
scaffold. Barclays’ chief executive Bob
Diamond, and other senior figures, may soon find themselves hitching an
Having already in this column made known my views of
the banks and their deplorably endless ethical lapses, I have no further useful
comment to make.
Except perhaps one: Don’t blame the messenger.