Jeff Horwich: The CEO of Barclays Bank in London’s is resigning — and, just this hour it looks like we can add the COO — the chief operating officer — as well. Last week the bank settled with U.S. and European regulators over allegations it manipulated the “Libor” interest rates to its own advantage.
Ralph Silva is here now with some analysis. He’s a banking analyst with SRN Research in London. Hello, Ralph.
Ralph Silva: Hello.
Horwich: What specifically are the CEO and COO alleged to have done?
Silva: The allegations are quite simple; it’s that the senior leadership of Barclays was not aware that there was manipulation in LIBOR, and as a result, they were culpable simply because they should have been aware. And that’s exactly what we’re seeing with the banks — not just in Europe, but we’re going to see some in the U.S. when more of these fines come through — is this something that affects the public. As a result, the senior management should have been aware this was going on and should have put a stop to it long before they did.
Horwich: And clarify for me — what is the implication for the public of the messing around with the LIBOR rate?
Silva: Well in most cases, LIBOR actually has a direct effect on your mortgage payments, your credit card rates, any loans you have, or even to pensions that are linked to certain products that are in fact based on LIBOR.
Horwich: We reported yesterday, Ralph, on a new report showing Britain’s banks slipping behind China’s banks in terms of profitability. So what’s the effect of this Barclays mess now on London’s tradition and integrity as a financial center?
Silva: Well, in terms of its integrity, it’s probably a short-term position, simply because we are looking at 15 banks in total that are being subject to this type of problem; so we’re going to see more banks fall, and they’re not all going to be British banks.
But in terms of the profitability, it’s going to have a profound effect. And it’s going to have a profound effect because all the politicians around the U.K. — as well as those in New York — are going to start developing more rules. And rules in banking cost money, and the more money they spend on developing rules, the less profitable they’re going to be.
So we’re going to see the Chinese banks and the Asian banks as a whole actually become more profitable over the next few years, whereas Western banks are actually going to get even less profitable.
Horwich: David Silva with SRN Research in London. Thanks very much.
Silva: Thank you.
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