What can shareholders and regulators reasonably expect of boards and non-executive directors of large, complex financial institutions? The question is being asked once again in the light of the rigging of Libor, the benchmark that gives a daily indication of 150 different interest rates at which leading banks obtain – or not as the case may be – unsecured funding in the London interbank market.

These rates are calculated on the basis of submissions from the world’s biggest banks. We now know that traders at Barclays and several other banks manipulated Libor rates to help boost profits, while managers at Barclays encouraged the underreporting of rates in 2007 and 2008 to convey the impression that the bank’s funding position was stronger than it was.

I would take a modest bet that no bank risk committee at the relevant times considered the possibility that a bank could incur a serious reputational and financial cost arising from the manipulation of Libor; still less that the chief executive of Barclays might be forced to fall on his sword as a result of misbehaviour in this arcane area. And I think this is such an unusual case that it offers a tricky basis for generalisations about governance.

For a start, Libor, which is set under the aegis of the British Bankers’ Association, harks back to the days of the self-regulatory club ethos in the City of London. At the time the abuses were taking place, the governance of this self-reporting process, in which the calculations are undertaken by Thomson Reuters, was flawed. It would have benefited from a more robust independent auditing process and more rigorous accountability. For as we all know, if there are any weak links in the framework of accountability, traders will exploit them.

The specific strategies used by Barclays’ traders, often in collusion with people at other banks, are set out in helpful detail on the Financial Services Authority’s website. What emerges clearly, apart from the traders’ typically egregious behaviour, is that there were serious failures of risk management and internal control.

The financial crisis threw up a different issue. An important feature of the Libor rate-setting process is that it has never been exclusively based on actual transactions, as not all banks require funds in marketable size each day in each of the currencies or maturities for which they quote. In normal times banks have enough information about past transactions to be able to hazard a reasonably accurate guess at the appropriate rate in markets where they have been inactive. Come the credit crunch, rate-setting became increasingly surreal as the interbank market dried up.

No doubt the authorities could have addressed these credit crunch problems in a more vigorous and timely way. Yet the judgments being made today about the involvement of the Bank of England and its deputy governor Paul Tucker are heavily coloured by a large dollop of hindsight. There was little evidence at the time that Barclays’ underreporting was seriously disadvantaging anyone or having a dramatic economic impact. So when the Bank’s officials were doing their utmost to prevent the collapse of the financial system at the height of the crisis, it strikes me as understandable that fixing a technical problem where there was no obvious damage would not have seemed an urgent priority.

Where bank governance is concerned, whether or not Bob Diamond, the chief executive, knew his traders were out of control, there was by common consent something hopelessly wrong with the culture. Much the same is true all across the top end of the financial system in the US and Europe. Yet what can non-executives do about culture? Not a great deal, apart from trying to ensure good appointments to top executive roles.

And what can regulators do when the non-executives do not appear, as at Barclays, to have grasped that the Financial Services Authority had completely lost confidence in Mr Diamond? Precisely what Sir Mervyn King, governor of the Bank, did – though technically not a regulator – with the chairman and chief executive of Barclays: retain the chairman to secure a succession and put the chief executive in the ejector seat without worrying too much about the accusations of unaccountable power that might follow. There will be retribution enough at the Treasury select committee if the judgment turns out to be flawed.

The lesson for shareholders is that regulators are now actively and rightly de-risking the banking sector. They are, in effect, filling an ownership vacuum. Shareholders could help by pressing for bank boards to be substantially refreshed. But it would be help in a modest cause, because the other less than novel lesson of Liborgate is that these behemoths are uncontrollable.

The writer is an FT columnist

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