4 The Tucker-Diamond dialogue and
the Diamond File Note |
The conclusion of the regulatory
68. Paragraph 176 of the FSA Final Notice documents
"a telephone conversation between a senior individual at
Barclays and the Bank of England during which the external perceptions
of Barclays' LIBOR submissions were discussed". The FSA Final
Notice went on to say that, following this telephone conversation,
which took place on 29 October 2008, an "instruction to reduce
[Barclays] LIBOR submissions" was "given by senior management"
on the same day. The FSA Final Notice made clear that "no
instruction for Barclays to lower its LIBOR submissions was given
during this telephone conversation", but went on to state
that "as the substance of the telephone conversation was
relayed down the chain of command at Barclays, a misunderstanding
or miscommunication occurred". This, the FSA Final Notice,
concluded meant "that Barclays Submitters believed mistakenly
that they were operating under an instruction from the Bank of
England (as conveyed by senior management) to reduce Barclays'
69. The CFTC and Department of Justice investigations
also examined the role of the Bank of England in the lowering
of Barclays LIBOR submissions in late October 2008. The Department
of Justice's description mirrored that of the FSA Final Notice.
They explained that "on October 29, 2008, a senior Bank of
England official contacted a senior Barclays manager". The
Bank of England official "discussed the external perceptions
of Barclays's LIBOR submissions and questioned why Barclays's
submissions were high compared to other Contributor Panel banks".
The Department of Justice concluded that:
As the substance of the conversation was passed
to other Barclays employees, certain Barclays managers formed
the understanding that they had been instructed by the Bank of
England to lower Barclays's LIBOR submissions, and instructed
the Barclays Dollar and Sterling LIBOR submitters to do so - even
though that was not the understanding of the senior Barclays individual
who had the call with the Bank of England official. Beginning
on November 6, 2008, as a result of increased liquidity in the
market, Barclays no longer needed to take into account the perceived
instruction from the Bank of England.
70. The CFTC outlined how in September and October
2008 "Barclays increasingly felt tremendous external pressures
concerning how it was being perceived in the market and media,
particularly due to its higher LIBOR submissions relative to the
other panel banks. The CFTC went on to say that Barclays "continued
to believe that the other panel banks LIBOR submissions were unrealistically
low" and that "even though it [Barclays] maintained
that its liquidity position was in fact strong, Barclays was increasingly
worried about these market and media perceptions". The CFTC
report that "at this time, the Bank of England had a conversation
with a senior individual in Barclays, in which it raised questions
about Barclays liquidity position and its relatively high LIBOR
submissions". The outcome the CFTC concluded was that:
In late October 2008, reacting to this pressure
and the discussion with the Bank of England, Barclays believed
it needed to lower its LIBOR submissions even further. As a result,
a member of senior management conveyed an instruction to the LIBOR
submitters, through their supervisor, that Barclays U.S. Dollar
and Sterling LIBOR submissions needed to be lowered to be 'within
the pack,' meaning Barclays LIBOR submissions were to be made
at or around the same rate as the other panel banks.
Who was the senior Bank of England
71. There was intense media speculation over the
following days as to the identity of the "senior individual
at Barclays and the Bank of England" who had participated
in this 29 October 2008 telephone conversation. By the weekend
of 30 June 2012 the media were reporting that the 29 October 2008
conversation had taken between Mr Bob Diamond, then President
of Barclays plc and Chief Executive of Barclays Capital, and Mr
Paul Tucker, then Executive Director of Markets, and now Deputy
Governor of the Bank of England (financial stability).
72. Subsequently, and ahead of Mr Diamond's appearance
before the Treasury Committee, Barclays published a File Note
of the 29 October 2008 discussion, written by Mr Diamond following
his conversation with Paul Tucker. This provided details of Mr
Diamond's recollection of the conversation (see Box A for the
full text of the File Note).
BOX A: THE DIAMOND FILE NOTE
From: Diamond, Bob: Barclays Capital
Sent: 10/30/2008 14:19:54
To: Varley, John: Barclays PLC
Cc: del Missier, Jerry: Barclays Capital (NYK)
Subject: File note: Bank of England call
File Note: Call to RED from Paul Tucker, Bank of
Date: 29th October 2008
Further to our last call, Mr Tucker reiterated that
he had received calls from a number of senior figures within Whitehall
to question why Barclays was always toward the top end of the
Libor pricing. His response was "you have to pay what you
have to pay". I asked if he could relay the reality, that
not all banks were providing quotes at the levels that represented
real transactions, his response "oh, that would be worse".
I explained again our market rate driven policy and
that it had recently meant that we appeared in the top quartile
and on occasion the top decile of the pricing. Equally I noted
that we continued to see others in the market posting rates at
levels that were not representative of where they would actually
undertake business. This latter point has on occasion pushed us
higher than would otherwise appear to be the case. In fact , we
are not having to 'pay up' for money at all.
Mr Tucker stated the level of calls he was received
from Whitehall were 'senior' and that while he was certain we
did not need advice, that it did not always need to be the case
that we appeared as high as we have recently.
The backdrop to the 29th
October 2008 Diamond-Tucker discussion
73. The 29 October 2008 discussion between Mr Diamond
and Tucker took place against a rapidly deteriorating outlook
for the global financial system. In the United States, Merrill
Lynch had sought refuge by selling itself to Bank of America,
and the insurance firm AIG had received emergency funding from
the US authorities. On 15 September 2008, Lehman Brothers had
filed for chapter 11 bankruptcy protection, triggering an intensification
of financial instability and the interbank funding markets became
even more dysfunctional.
74. The situation in the UK was also critical. On
8 October 2008, the UK Government had announced a large-scale
package to stabilise the UK financial system. More specifically,
the Government said it was "bringing forward specific and
comprehensive measures to ensure the stability of the financial
system and to protect ordinary savers, depositors, businesses
These measures were intended to address what the Government described
as the three root causes of the current financial crisis: concerns
about liquidity, capital and funding:
· To address concerns about liquidity, at
least £200 billion was to be made available to banks under
the Bank of England's Special Liquidity Scheme (SLS);
· To address funding concerns, the Government
established a Credit Guarantee Scheme. This made available to
participating institutions a government guarantee to refinance
maturing debt and was designed to unblock the interbank money
· To address concerns about solvency, the
Government asked the UK banks to increase their 'Tier 1' capital
ratios and established the Bank Recapitalisation Fund, which provided
support for those banks who wished to strengthen their capital
ratios through the Government rather than the private sector.
75. By mid-October 2008, two banksRBS and
HBOShad been rescued with £37 billion of taxpayer
support with the result that the Government now held a 57.9% stake
in RBS and a 43% stake in Lloyds Banking Group (which emerged
from the merger of Lloyds TSB and HBOS). Barclays at this stage
had not made use of taxpayer monies for the purpose of recapitalisation,
but it did benefit from other Government support mechanisms during
the crisis such as the special liquidity scheme and the credit
guarantee scheme. It was looking for a private-sector solution,
but rumours were rife that it would also end up having to accept
Both Mr Diamond and Mr Tucker stressed to us that October 2008
was a time of acute financial instability and that their discussion
had taken place just weeks after the part-nationalisation of RBS
76. Barclays sent us a supplementary memorandum immediately
prior to Mr Diamond's appearance before this Committee. This provided
us with some Barclays-specific background context as to the tightening
of liquidity conditions in October 2008 and Barclays LIBOR submissions
during this period. Barclays told us that "during
October 2008, in the wake of the collapse of Lehman Brothers,
when liquidity conditions had tightened acutely, Barclays raised
its US Dollar LIBOR submissions more significantly than other
panel members". Barclays went on to describe how "in
the month of October 2008, in particular, Barclays US Dollar LIBOR
submissions for the 3 month maturity were the highest or next
highest of the panel on every single day of the month and therefore
excluded from the calculation of LIBOR". Barclays ended by
stating that it:
did not understand why other banks were consistently
posting lower submissions; Barclays firmly believed that the other
panel members were not, in fact, funding at a lower cost than
77. The discussion between Mr Diamond and Mr Tucker,
which had taken place at the instigation of Paul Tucker,
and the subsequent publication of Mr Diamond's File note of his
recollection of their discussion, had fuelled media speculation
that either the Bank of England or the "senior" Whitehall
figures referred to in the Diamond File note had encouraged or
instructed Barclays to lower their LIBOR submissions. This was
in large part because the end of the File note stated that:
[...] while he [Mr Tucker] was certain we [Barclays]
did not need advice, that it did not always need to be the case
that we [Barclays] appeared as high as we [Barclays] have recently.
The way Mr Diamond worded the last sentence meant
that it was capable of being interpreted as an instruction, from
either Whitehall or the Bank of England, to Barclays to reduce
its LIBOR submissions.
78. However, Paul Tucker, when subsequently questioned
on whether Mr Diamond's File note was an accurate reflection of
their 29th October 2008 conversation, replied "not
Mr Tucker told us that "the last sentence gives the wrong
When asked how the File note should have ended in order accurately
to reflect their discussion, Mr Tucker replied that:
It should have said something along the lines
of, "Are you ensuring that you, the senior management of
Barclays, are following the day-to-day operations of your money
market desk, your treasury? Are you ensuring that they don't march
you over the cliff inadvertently by giving signals that you need
to pay up for funds?"
Who were the senior figures in
Whitehall and did they instruct?
79. Mr Diamond appeared uncertain as to the identity
of the "senior figures within Whitehall". When asked
"what you took to mean by the phrase Whitehall, he replied
'officials in the Government'".
Later exchanges appeared to demonstrate that Mr Diamond had no
idea who these "senior figures within Whitehall" were:
Michael Fallon: Can we, Mr Diamond,
go back to the file note of your call? You said in answer to the
Chairman that you thought the senior figures referred to wereyou
said at one pointofficials in the Government, and then
later on you said members of the Government. Which do you believe?
Who do you think they were?
Bob Diamond: I would only be speculating
if I told you who I thought they were, and I don't think it's
appropriate to speculate. My recollection is Paul didn't mention
who he was referring to or I would have put it in the note.
Michael Fallon: Right. But who do you
think he could possibly have been referring to?
Bob Diamond: I don't want to speculate.
Michael Fallon: A Department or
Bob Diamond: Senior people in the
80. Paul Tucker, when he appeared before us the following
week, confirmed that the "senior" Whitehall figures
referred to in the File note were not Government Ministers, but
civil servants: Sir Jeremy Heywood, Tom Scholar, Sir Nick Macpherson
and Jon Cunliffe.
81. Paul Tucker was questioned about the so-called
instruction. He denied categorically that any Government Minister
or civil servant had asked him to get Barclays to lower their
Mr McFadden: Can I ask you, did
Jeremy Heywood or any other Government official that you mentioned
in your opening answer to the Chairman ever encourage you to lean
on Barclays or any other bank to lower their LIBOR submissions?
Paul Tucker: Absolutely not.
Mr McFadden: Did any Government
Minister from the last Government ever encourage you to lean on
Barclays or any other bank to lower their LIBOR submissions?
Paul Tucker: Absolutely not.
Mr McFadden: Specifically, did
Shriti Vadera ever ask you to lean on Barclays or any bank to
lower their LIBOR submissions?
Paul Tucker: Absolutely not. If
I may just add one thing there, what is more I don't think that
I spoke to Shriti Vadera throughout this whole period at all.
Mr McFadden: Thank you. Did Ed
Balls ever ask you to lean on Barclays or any other bank?
Mr McFadden: Or any other Government
82. Paul Tucker also denied the charge that he had
personally issued an instruction:
Chair: [...] would you categorically refute
the suggestion that this conversation might reasonably have led
someone to suppose you were inviting Barclays to join the pack
and under-report LIBOR?
Paul Tucker: Absolutely.
The Whitehall-Tucker discussions
83. Mr Tucker went on to explain why he had received
these telephone calls, referred to in the File note, from "senior"
figures in Whitehall. He said that Whitehall had two key concerns:
There were two parts to this, which come together
I think. Is the package working? If it is, why isn't it working
more quickly? Secondly, should we be worried about Barclays? I
don't want to say that it was expressed as concretely as this,
because I can't remember, to be honest, but there was a sense
of, including in the Bank, was the right decision taken in allowing
Barclays not to take capital support from the Government?
In other words, Mr Tucker said that the concerns
in Whitehall were about the effectiveness of the many emergency
measures which had been announced and the strength of Barclays
as an institution, not about encouraging Barclays to manipulate
its LIBOR submissions. With respect to the second concern, Mr
Tucker said the source of this particular concern lay in the fact
that "whereas some market participants felt that money-market
conditions could ease because funding was being provided by the
official sector, Barclays had continued to pay higher rates in
the market, as reflected in their LIBOR submissions". Mr
Tucker told us that civil servants were asking whether:
the right decision [had been] taken when Barclays
didn't take capital from the Government? If you remember, ...
the Government's, the authorities' three-pronged package was announced
on 8 October, I believe. On the 13th, when it was announced that
RBS and HBOS Lloyds were taking capital from the Government, earlier
that day Barclays announced that they would not be taking capital
from the Government and would be taking various other measures.
There was a degree of concern about that; there was a degree of
anxiety about that.
Mr Tucker went on to describe how some other banks
"had been taken under the explicit wing of the Government",
whilst "HSBC and Abbey National Santander were seen, at that
point, to be relatively safe":
That left Barclays. During that period, in the
measure of credit risk indicated by the credit default swap market,
Barclays was top. The way this crisis unrolled in more or less
every financial centre was, as one domino went, "Who might
the next one be?" We were not in the position of thinking
Barclays is doomed. Had we thought that we, the Bank, would have
given very strong advice to the Government that it was not safe
for Barclays not to take capital from the Government, but it was
a hard call and there was anxiety.
Barclays and the perceived instruction
84. Barclays, in its supplementary memorandum to
this Committee prior to Bob Diamond's appearance before us, attempted
to clarify the issue of whether an instruction had been issued
and, if so, by whom. It told us that, subsequent to the 29 October
2008 discussion between Messrs Diamond and Tucker:
Bob Diamond relayed the contents of the conversation
to Jerry del Missier. Bob Diamond did not believe he received
an instruction from Paul Tucker or that he gave an instruction
to Jerry del Missier.
We questioned Mr Diamond on this point. He was clear
that he did not believe he had received an instruction, whether
from the Bank of England or Whitehall:
Chair: [...] The note from Mr Tucker
says that he felt your LIBOR returns could be lower, doesn't it?
Bob Diamond: He felt that our LIBOR
rates relative to the other 15 posters
Chair: Could be relative[ly] lower.
Chair: Why then, on page 2 of the
[Barclays] note to this Committee yesterday, did you say that
you don't believe you received an instruction?
Bob Diamond: I did not believe
it was an instruction.
The Diamond-Tucker discussion
85. Paul Tucker told us that the key message he wished
to convey to Mr Diamond was to make "sure that the senior
management of Barclays was overseeing the day-to-day money-market
operations and treasury operations and funding operations of Barclays
so that Barclays' money desk did not inadvertently send distress
signals". He went on to explain that:
In actual paying up for money in terms of what
you borrow, you do not need to be at the top of the market all
of the time. It is very important not to come across as desperate.
86. Mr Tucker was challenged about the section of
the File note which stated that "I [Mr Diamond] asked if
he [Paul Tucker] could relay the reality, that not all banks were
providing quotes at the levels that represented real transactions".
More specifically, Mr Tucker was asked by the Committee whether
he had considered the possibility that Mr Diamond was alerting
him to the fact that other banks were falsely lowering their LIBOR
submissions. Mr Tucker rejected this interpretation of Mr Diamond's
comments. Instead he explained that market conditions over this
time had worsened and that the markets "had dried up",
albeit "not completely". As a result, "for months
there had been periods where sometimes it [LIBOR submissions]
was based on judgments as to where they [banks] would be able
to borrow rather than actual transactions of where they were borrowing".
He went on to tell us that the banks were:
having to make judgments about where they could
borrow in the market, if they are not actually borrowing in the
market. If they were not doing real transactions, then Bob Diamond
was effectively saying, "Look, when they come to do real
transactions they are going to be paying the same as us."
87. Mr Diamond told us that he believed Paul Tucker
was trying to tell him was that there were "Ministers in
Whitehall who are hearing that Barclays is always high. That could
lead to the impression that you are not funding yourself."
He told us that his first reaction was:
"John [Varley], you have to get to Whitehall.
You have to make sure they know that we are funding fine. It's
not wonderfully, it is adequately, but we have an equity issue
about to settle in two days. We're raising £6.7 billion of
capital when a number of British banks had just taken capital
from the Government."
A key point which Mr Diamond appeared to have had
in his mind at this time was the potential threat of nationalisation:
If Whitehall was told, "Barclays is at the
highest of LIBOR", without knowing all that I just went through,
they might say to themselves, "My goodness, they can't fund.
We need to nationalise them," as they had nationalised other
This may help explain why Mr Diamond, following the
discussion with Paul Tucker, then wrote a File note to John Varley,
then Barclays Chief Executive and Jerry del Missier, a senior
lieutenant of Mr Diamond's. Writing File notes, Mr Diamond told
us, was something he did "not [do]frequently" at that
88. John Varley did not give oral evidence in this
inquiry. However, he wrote to us on 16 July 2012 to provide an
explanation of what action he took upon receiving Mr Diamond's
On the day I received Mr Diamond's email, I spoke,
or left voicemail, with Lord Myners, Sir John Gieve, and Mr Sants
to inform them of the successful completion of Barclays capital
raising, which alleviated concerns about our capital ratios and
funding position. To the best of my recollection, those conversations
did not refer to concerns about Barclays LIBOR submissions. I
do not recall any subsequent discussions at that time with them
or other members of the tripartite authorities specifically referring
to concerns about Barclays LIBOR submissions. On 7th November,
I attended a meeting with the Chancellor of the Exchequer and
other bank executives. There was reference to LIBOR during that
meeting, but it related to growth in the economy, and what the
banks could do to support that, particularly in the context of
the cost of credit to small business.
We subsequently wrote back to Mr Varley requesting
further information about any discussions he may have had with
Mr Diamond or del Missier about the conversation between Mr Diamond
and Mr Tucker or the subsequent File note. He told us:
As to whether I replied to Mr Diamond's file
note or took any consequential action, I emailed Mr Diamond on
3 November 2008 in response to his file note of 30 October 2008
saying: "Bob, We should discuss." I believe this was
in anticipation of a working dinner I was due to attend on 3 November
with Lord Turner and Mr Sants, to which I referred in my letter
to you of 16 July 2012. I do not recall receiving a reply from
Mr Diamond or taking any specific action beyond what I described
in that letter to you of 16 July.
He went on to tell us that "other than responding
to Mr Diamond in the way I describe in paragraph numbered 4 [reproduced
above] , I do not recall speaking with him about his conversation
with Mr Tucker or his subsequent file note". Mr Varley ended
by stating that "to the best of my recollection and belief,
I did not discuss Mr Diamond's conversation with Mr Tucker or
his file note with Mr del Missier". Similarly, Mr Varley
stated that he "did not discuss Mr Diamond's conversation
with Mr Tucker or his file note with Mr Agius, or any other senior
executive or non-executive director".
The role of Jerry del Missier
89. Following publication of the Diamond File note
it emerged that Jerry del Missier, at that time Co-President of
Barclays Capital, and copied into the File note along with Mr
John Varley, had mistakenly assumed that Mr Diamond had instructed
him to lower Barclays LIBOR submissions.
90. When questioned as to how Mr del Missier could
have misconstrued the File note and concluded that it was an instruction
to lower Barclays LIBOR submissions, Mr Diamond simply replied
"Michael, with apologies, I can't put myself in Jerry's shoes".
We therefore asked Jerry del Missier how he had misconstrued Mr
Diamond's File note:
Well, Mr Fallon, I know only what I clearly recall
from my conversation with Mr Diamond. The investigators that have
looked at this thoroughly have concluded that there was a miscommunication
and misunderstanding, but I can only recall my recollectionI
can only state what my recollection of the conversation is.
91. Mr del Missier revealed that he had acted on
the basis of a telephone conversation with Mr Diamond on the 29
October 2008, following Mr Diamond's conversation with Mr Tucker,
and not on the basis of the File note.
When questioned about his conversation with Mr Diamond,
Mr del Missier told us that Mr Diamond told him that:
he had a conversation with Mr Tucker of the Bank
of England, that the Bank of England was getting pressure from
Whitehall around Barclaysthe health of Barclaysas
a result of LIBOR rates, that we should get our LIBOR rates down,
and that we should not be outliers.
When questioned further on this topic, Mr del Missier
What was communicated to me by Mr Diamond was
... about political pressure on the bank, regarding Barclays's
health and, as indicated by our LIBOR rates, that we should get
our LIBOR rates down, and not be outliers; and there's nothing
in the note which is in conflict with that [Diamond-Tucker] conversation.
92. We asked whether Mr Diamond had told Mr del Missier
"effectively to invent a submission", but Mr del Missier
replied categorically "No, Sir; that is not what Mr Diamond
asked whether he believed he was "acting on an instruction
from the Bank of England or from other Whitehall sources",
Mr del Missier replied "yes".
He went on to say that he believed the so-called instruction to
have come from Paul Tucker, adding that "Mr Diamond told
me that Mr Tucker had given it[the instruction]".
He confirmed in response to repeated questioning that he viewed
the instruction as coming from the Bank of England rather than
the "public authorities" more generally.
Mr del Missier was finally asked whether he would have issued
the instruction in the absence of "cover from the tripartite".
He replied "no".
93. Jerry del Missier told us that he was in "regular
communication" with Mr Diamond, albeit "not always daily",
and would communicate with him several times a week.
However, he went on to tell us that he never discussed the 29
October instruction again with Mr Diamond.
When questioned as to why this was the case, Mr del Missier told
there were many, many big events going on in
this period, Mr Chairman. The entire financial system was hanging
in the balance, and in the grand scheme of everything that was
going on, it didn't seem a significant event, given the number
of significant events that were transpiring at that time.
Passing on the perceived instruction
94. Mr del Missier said that he then "passed
the instruction ... on to the head of the money markets desk"
who he identified as Mr Mark Dearlove.
Mr del Missier told us that he "relayed the contents of the
conversation that I had with Mr Diamond, and fully expected that
the Bank of England's views would be incorporated in the LIBOR
In subsequent questioning Mr del Missier told us that, more specifically:
I said, "I've spoken to Mr Diamond. He's
had a call from Mr Tucker." I alluded to the pressurethe
political pressurearound Barclays's health, as demonstrated
by our LIBOR rates, and that we should get our rates down and
not be an outlier.
When challenged on what exactly he expected to happen,
Mr del Missier replied that "given that Barclays was high
rates, I would have expected that taking that into account would
have resulted in lower submissions".
When asked how Mr Dearlove reacted to the instruction, Mr del
Missier told us he was unable to "recall the full specific
of the conversation".
We pressed Mr del Missier further on what Mr Dearlove said in
response to the instruction request.
Andrea Leadsom: But would you expect
Mr Dearlove to say, "Then I asked Mr del Missier, 'Are you
sure about this? This is not in the rules, at the very least,
and this is breaking the law, at the very worst.'"? Would
he tell us that that is what he said to you or not?
Jerry del Missier:
I don't think that is what he would say.
95. Mr Dearlove then passed on the instruction to
the submitter. Mr del Missier said that he then had "a follow-up
conversation with the head of the desk, and several of the desk
members, and gave them the context of the conversation that I
had had with Mr Diamond about the conversation that he had had
with Mr Tucker".
However, Mr del Missier then told us that he did not check to
see what effect his instructions had on Barclay's LIBOR submissions.
96. Mr del Missier was unable to remember Mr Dearlove's
reaction to being issued with the instruction, but told us that
through the course of the investigation, he learnt that "compliance
was alerted of the nature of the request that had come in",
adding "but there was no follow-up from compliance"
Mr del Missier confirmed that a Mr Stephen Morse, Head of Compliance
was the person who was informed by the money market desk of the
97. The FSA Final Notice noted that a submitter "emailed
Manager F and others on 29 October 2008 in relation to this instruction,
copying in compliance". The email was sent to Mark Dearlove
and Stephen Morse, the head of compliance was copied in. The email,
which was subsequently supplied to the Committee by Barclays,
shows that the submitter was uncomfortable with what he was being
asked to do. The email stated:
As per the telephonic communication today with
Mark Dearlove. I have been requested to reduce the Sterling Libor
rates to be more in line with the "Pack".
As I understand it this is an instruction by
either senior management and/or the Bank of England.
I voiced my views as below but as such will comply
with the request and that it will take me a week to comply.
But it should be noted that this will be breaking
the BBA rules with regard to the setting of Sterling Libor rates
IE (a reasonably [sic] amount offered in the market in the period
concerned.) and as such the breaking of such rules will happen
until the instruction demanded by senior management will be rescinded
or the BBA rules are changed.
The FSA Final Notice stated that "compliance
did not consider appropriate for Barclays' submitters to comply
with the instruction". On 3 November, Mr Morse wrote an email
in response to the submitters 29 October email, and which he sent
to, amongst others, Mr Dearlove. The email stated:
Thanks for your note. In my view we should continue
to quote Sterling Libor rates where we see it - we obviously need
to make sure we follow the BBA's rules and avoid potential action
by the FX and MM Committee [of the BBA]. I've not been made aware
of any suggestion by external sources that we should reduce rates
to join the "pack", but I'll take that up with senior
management this week [...].
98. Notwithstanding the concerns expressed by Mr
Morse in his 3 November 2008 email it is clear that no further
action was taken by Group Compliance. The FSA Final Notice concluded:
Compliance did not speak to Barclays' Submitters.
Compliance did not ensure that the Submitters did not follow the
instruction. The relevant individual in Compliance thought his
email would suffice to "nip it in the bud". In addition,
Compliance did not discuss the issue with senior management. An
individual in senior management went on to reiterate the instruction
at a meeting with Barclays' Submitters on 6 November 2008.
99. The FSA investigation has left a number of important
questions unanswered. The first of these is whether "senior"
Whitehall figures issued an instruction to Paul Tucker to get
Barclays to lower their LIBOR submissions or, as Mr Tucker insists,
Whitehall were simply trying to garner information about the health
of Barclays, and the success or otherwise of the Government's
rescue package, at a time of acute financial instability. Paul
Tucker told us that he did not receive an instruction from Whitehall
(whether from Government Ministers or officials) to tell Barclays
to lower their LIBOR submissions and we have not received any
evidence to the contrary. The
evidence we received suggests that Whitehall was prompted to contact
the Bank of England because of its concerns about whether the
October 2008 rescue package for the UK financial system was working,
as well as concerns about the financial health of Barclays. This
was understandable given the fragility of the UK and international
financial system in October 2008.
100. Mr Tucker relayed Whitehall concerns about Barclays
to Mr Diamond in a telephone discussion on 29 October 2008. There
is no transcript or recording of the conversation between the
two men. Nor did Mr Tucker, or his officials, make a contemporaneous
note of the discussion. The only record of the discussion is therefore
a File note written the following day by Mr Diamond.
101. Mr Tucker contests the accuracy of the final
sentence of the 28 October 2008 File note. The final critical
sentence reads"while he [Mr Tucker] was certain we
[Barclays] did not need advice, that it did not always need to
be the case that we [Barclays] appeared as high as we [Barclays]
have recently". It is by no means clear that the final sentence
of Mr Diamond's record of the call was an instruction to lower
Barclays LIBOR submissions, although it was interpreted in that
way by Barclays. Mr Tucker disputes Mr Diamond's recollection
of their 29 October 2008 discussion as recorded in the File note
and, in particular, objects to the final sentence. Mr Tucker told
us that the last sentence "gives the wrong impression"
and believes it should have said "Are you ensuring that you,
the senior management of Barclays, are following the day-to-day
operations of your money market desk, your treasury? Are you ensuring
that they don't march you over the cliff inadvertently by giving
signals that you need to pay up for funds?" We
will never know the details of the discussion between the Mr Tucker
and Mr Diamond. What we do know is that Mr Tucker denied ever
having issued an instruction to Barclays whilst Mr Diamond denied
having received an instruction from Mr Tucker.
102. The File note
is of secondary importance as far as the subsequent transmission
of the instruction is concerned. This is because Mr del Missier
told us that he acted, not on the basis of the File note, but
on the basis of the 29 October 2008 discussion he had with Mr
Diamond, following the conversation between Mr Diamond and Mr
Tucker. Mr del Missier informed us that the File note correctly
records the substance of the Tucker-Diamond discussion as relayed
to him by Mr Diamond, but not the exact words. There is no File
note of the conversation between Mr Diamond and Mr del Missier
and no recording was taken of their discussion.
103. It remains
possible that the entire Tucker-Diamond dialogue may have been
a smokescreen put up to distract our attention and that of outside
commentators from the most serious issues underlying this scandal.
104. Mr Diamond denied that he himself issued an
instruction to Mr del Missier. Mr del Missier, on the other hand,
believed that he did receive an instruction, but one which emanated
from the Bank of England. The FSA Final Notice concluded that
Mr del Missier misunderstood what Mr Diamond was communicating
to him. However, Mr del Missier in evidence to us was clear that
he believed he was implementing an instruction from the Bank of
105. From Mr del
Missier's evidence it appeared that Mr Dearlove was comfortable
with the instruction that was passed to him following his 29 October
2008 conversation with Mr Diamond. There was some resistance from
the submitter, who emailed compliance with his concerns. However,
he or she ultimately acted on the instruction. There appears to
have been, once again, no real 'push-back' from the compliance
function when they were informed by Group treasury of the instruction.
This lack of 'push back' demonstrates the weakness of the compliance
function in Barclays at that time. It may also reflect the fact
that Group treasury had been submitting false rates since September
2007 and that, to this end, Mr del Missier's instruction was not
a departure from prevailing practice. It is unclear to the Committee
why Barclays has attempted to place such weight on the Tucker-Diamond
phone call given the pattern of repeated dishonesty in LIBOR submissions
in the months running up to this phone call set out in the FSA
Final Notice. Barclays did not need a nod, a wink or any signal
from the Bank of England to lower artificially their LIBOR submissions.
The bank was already well practised in doing this. Mr del Missier
appears to have stressed the fact that what he saw as an instruction
came from the Bank of England and that this may have muted resistance
to it. Mr del Missier's evidence, that he received such an extraordinary
instruction from the Bank of England, yet subsequently queried
it neither with Mr Diamond nor with those to whom he passed the
instruction, is not convincing. He would have known that falsifying
LIBOR submissions was not permitted.
106. Mr del Missier has sought to play down the
significance of the 29 October 2008 instruction. He stressed that
it was of relatively minor significance, which would fit with
the pattern of behaviour from Barclays in the months running up
to the phone call. Certainly, it appeared sufficiently unimportant
to him that he never discussed the matter again with Mr Diamond.
Indeed Mr Del Missier apparently did not even check whether his
instruction had been acted on. However, Mr Diamond felt that the
discussion with Mr Tucker was of sufficient importance to merit
the writing of a File note, something Mr Diamond did not ordinarily
107. The Committee
remains sceptical about the importance of the Tucker-Diamond phone
call given the already established pattern of dishonest LIBOR
submissions from Barclays set out in the FSA Final Notice. The
lack of a record by the Bank of England of the conversation between
Mr Tucker and Mr Diamond is of great concern. The fact that Mr
Tucker failed to make a contemporaneous note of the conversation
is explicable given that the UK was in the midst of the most serious
financial crisis in modern times: there was unprecedented pressure
on senior Bank of England staff at this time. Nonetheless, the
Bank of England should have had adequate procedures in place for
at least the making of a File note of such conversations. We recommend
that the Bank undertake a review of its note keeping systems,
especially those involving senior executives, and publicly report
108. If Mr Tucker,
Mr Diamond and Mr del Missier are to be believed, an extraordinary,
but conceivably plausible, series of misunderstandings and miscommunications
occurred. The evidence that they separately gave describes a combination
of circumstances which would excuse all the participants from
the charge of deliberate wrongdoing.
118 FSA, Final Notice, 27 June 2012, p 36, para 176 Back
P 24 Back
'What did Bank of England say to Barclays about Libor?', by Robert
Peston, BBC Newsonline, 1 July 2012 Back
Barclays, Supplementary information regarding Barclays settlement
with the Authorities in respect of their investigations into the
submission of various interbank offered rates (AMENDED), 3 July
HM Treasury Press notice, Financial support to the banking
industry, 8 October 2008 Back
HM Treasury, Pre-Budget Report 2008, November 2008, pp54-55 Back
The Special Liquidity Scheme was first introduced in April 2008 Back
Eight banks participated in the recapitalisation scheme: Abbey,
Barclays, HBOS, HSBC, Lloyds TSB, Nationwide Building Society,
Royal Bank of Scotland and Standard Chartered Back
For example British banks set for 40 billion pound rescue:
sources, Reuters, 12 October 2008 Back
Qq 36, 337 Back
Supplementary memorandum from Barclays, 3 July 2012 Back
Supplementary memorandum from Barclays, 3 July 2012 Back
Q 330 Back
Q 332 Back
Q 333 Back
Q 37 Back
Q 335 Back
Qq 40, 336 Back
Q 338 Back
Q 337 Back
Q 346 Back
Q 38-40 Back
Q 358 Back
Q 362 Back
Q 47 Back
Q 27 Back
Letter from Mr John Varley to the Chairman of the Treasury Committee,
16 July 2012 Back
Letter from Mr John Varley to the Chairman of the Treasury Committee,
2 August 2012 Back
Q 87 Back
Q 890 Back
Qq 823, 878 Back
Q 825 Back
Q 891 Back
Q 829 Back
Q 878 Back
Q 882 Back
Q 888 Back
Qq 880-881 Back
Qq 903-906 Back
Q 839 Back
Q 839 Back
Q 999 Back
Qq 831-832 Back
Q 1000 Back
Q 834 Back
Q 1003 Back
Q 863 Back
Q 864-868 Back
Qq 1005-1006 Back
Q 1019 Back
Barclays, email from money market desk to Compliance, 29 October
2008, received by Committee 23 July 2012 Back
Barclays, email from Compliance to money market desk, 3 November
2008, received by Committee 23 July 2012 Back
FSA Final Notice, 27 June 2012, p 37, Para 179 Back