Tuesday, August 21, 2012

UK regulator seeks BBA oversight

The Israeli general takes his seat after expanding a brief thank you to all members for our time. The red emergency light in the middle of the roundtable starts to flash which indicates and urgent message for one of the 24 members in the room from outside. This has been installed since no mobile devices are allowed. As a matter of fact nothing is allowed inside the conference room. I appreciate the very tight security we have in place to prevent any leaks, moles, lobbying and corruption.

The conference room has been locked from inside as well as outside. The green light starts flash which indicates that the security personnel outside has cleared the messenger and unlocked the doors. As there are no objections we unlock the door from the insight and two guards escort the messenger into the conference room. Given that he has made it to the top floor where the conference room is located he must have vital information which could not wait to be delivered.

The message is for one of the three CEO's from the banking sector. After he received the message he asks the messenger to repeat what he was just told in front of all conference members. It has to do directly with the LIBOR rigging scandal. Barclays was the first bank which was caught in the LIBOR scandal which has expanded to include seven other banks. Martin Wheatley, managing director at the FSA, has been charged with the investigation of the scandal.

The following banks have received subpoenas, are under investigation or settled fines:

1. Barclays

2. HSBC

3. RBS

4. Citigroup

5. JP Morgan Chase

6. UBS

7. Deutsche Bank

Martin Wheatley is the problem right now which needs to be addressed rather fast before he pushes regulation and oversight onto the BBA. The BBA is charged with the creation and oversight of LIBOR. They hold bi-monthly meetings at undisclosed locations and no minutes are released to the public. The members of the BBA Foreign Exchange and Money Markets Committee are also a secret which eliminates lobbying of members.

The BBA bares sole responsibility for a $300 trillion global market and is secretive with no transparency as well as out of reach of politicians and regulators. This is exactly the way it needs to function which is why it was set-up this way. Now the FSA under Wheatley's direction wants to ruin another part of free market capitalism. Yes, there was one scandal which emerged which does not mean the entire structure needs to be overhauled as the socialistic pest favors.

Members of the BBA are very experienced as well as independent from the BBA, but at the same time represent their banks during those meetings. Wheatley protests the lack of openness and transparency of the committee as their decisions impact the public good. The left-wing idiocy will drool all over statements like that. He also insists there needs to be greater accountability for firms as well as markets in order to keep the integrity of the BBA.

LIBOR is set by a daily poll asking banks what they estimate the costs would be to borrow from each other for different durations and in different currencies. The FSA is unconvinced that recent reforms carried out by the BBA will include sanctions against banks which manipulated the rate by giving false submissions to the daily poll. The Bank for International Settlements raised concerns over LIBOR in 2008. The Bank of England denies involvement in the scandal.

The BBA has the right to suspend or remove banks from the committee if they are suspected of providing false or misleading information to the BBA, a right they have never exercised nor plan to exercise. Japan regulators have suspended trading desks for several weeks in relation the TIBOR scandals, a move other regulators have not followed yet. Either way, Wheatley's suggestions of oversight and regulation of the BBA would have a counter-productive effect and yield nothing more that a victory for regulators without any benefit to the public good as they claim they have the biggest interest in.

We thank the messenger for this developing story and he is being escorted out of the room by the two security guards. The doors are locked from both sides and we take our focus away from Iran and Syria for a few moments to discuss how to handle this new situation in our best interest. Oversight and regulation will be devastating to the industry and we would need to abandon the BBA altogether in order to create a new system. The hard part will be to get all the banks to flock to the new association which would replace a regulated BBA with oversight by the FSA.

We agree to take a one hour break from the meeting in order to consume a meal. All of us have been asked what we would like to eat prior to our entry into the conference room. The red light flashes again, followed by the green light. As we unlock the doors in this planned event, a dozen security guards usher in the caterers with our extremely late dinner. The catering staff had to undergo strict security proceedings and all the food has been screened as well as sampled in the kitchen where the catering staff has to prepare out food under strict supervision.

After the catering staff is escorted out of the conference room and we start to enjoy our meal several small talks emerge and I am being approached by the GNU officer from earlier this evening.

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