By Andrew Barr
The Westminster government were the “co-authors” of the Barclays banking scandal due to “catastrophic” regulation failures, SNP Westminster Treasury spokesperson Stewart Hosie has claimed.
The allegations come after it was revealed the London Interbank Market [Libor] lending rate was being manipulated by several banks in order to increase profits and bonuses in the banking sector.
The activity has resulted in Barclays being fined £290m and is described by the Financial Services Authority as having lasted for three and a half years.
The rigging of global interest rates occurred between 2005 and 2008, and was intended to boost bank profits and increase bonuses for traders. Analysts have also claimed that house buyers in the UK almost certainly had to pay higher mortgages as a result of the scam.
There is now speculation that criminal proceedings could result from the scandal and that banks could face claims for compansation. One analyst described the situation as a "nuclear bomb" exploding on the City of London.
Chancellor George Osborne has said that HSBC, RBS, Citigroup and UBS are also under investigation.
In a statement to the Westminster parliament, Mr Osborne told the House: "The FSA report is a shocking indictment of the culture at banks like Barclays in the run-up to the financial crisis.
"Through 2005, 2006 and early 2007 we see evidence of systematic greed at the expense of financial integrity and stability and they knew what they were doing,"
Alistair Darling, former Labour Chancellor, said: "This whole thing stinks. The banking industry needs this news like a hole in the head and they only have themselves to blame – again."
However, commenting on the emerging scandal, SNP MP Stewart Hosie said that the it “raises questions” about the actions of Gordon Brown and Alistair Darling during their term in Downing Street, which was the period the practices were taking place.
There will also be questions over what former FSA advisor and Barclay's Finance Director, Naguib Kheraj, knew of the scandal and whether he informed Treasury officials or Labour Ministers when he was recruited to the regulatory body in April 2008.
Kheraj was Barclay’s Finance Director at the time the practices were taking place, having previously held the roles of deputy chairman of the global investors department and global head of investment at Barclays Capital, where the misdemeanours took place.
In 2008, when Kheraj was recruited by HMRC's Dave Hartnett to advise the FSA after the Northern Rock collapse, Alistair Darling was UK Chancellor and Gordon Brown was Prime Minister.
The FSA has already revealed that a culture at Barclay’s saw traders openly lobby colleagues in order to manipulate interest rates. Martin Taylor, who was Barclays' chief executive from 1994 to 1998, said the bank had engaged in "systematic dishonesty".
"It's hard to believe that a policy which seems to be so systematic was not known by people at or very near the top of the bank." he added.
Stewart Hosie called for the Financial Services Bill, currently being considered by parliament, to be reviewed to ensure that the Financial Conduct Authority is equipped with “powers and sanctions” to deal with the scandal.
Mr Hosie – a Member of the Treasury Select Committee – said: “The scale of the manipulation of Libor – described by the FSA as lasting for three and a half years is truly scandalous. It is incredible that, at the present time, this manipulation is not a criminal offence.
“The public will quite rightly be asking what on earth the FSA was doing for the three and a half years that this was happening and, equally, this scandal raises questions for those who occupied Downing Street at the time that this abuse was going on – Labour’s Gordon Brown and Alastair Darling.
“While Barclays will be held to account for their actions by shareholders and regulators, it is clear that Westminster’s catastrophic regulatory and supervisory failures were the co-authors of this scandal.
“The last Labour government’s age of irresponsibility is catching up with Alistair Darling and Gordon Brown.
“The evidence over who is responsible for the economic crisis, and the regulatory failures which contributed to it, all lead directly back to Downing Street. The failure of regulation was ‘made in Downing Street’ – numbers 10 and 11.
“With the Financial Services Bill still before parliament we must take the opportunity to ensure that the new Financial Conduct Authority has both the powers and the sanctions to deal with this sort of abuse.”
The current chief executive of Barclays, Bob Diamond, is now facing calls to resign. On Wednesday Mr Diamond said he would give up his bonus for this year, but many believe that further action such as criminal enquiry is required.
Labour leader Ed Milliband, said: "This cannot be about a slap on the wrist. When ordinary people break the law, they face charges, prosecution and punishment. The same should happen here. The public who are paying the price for bankers' irresponsibility will expect nothing less."
In the House of Lords, Labour's deputy chief whip, Lord Tunnicliffe, admitted his party was responsible for gaps in the law.
Lord Tunnicliffe said: “Criminal sanctions are extraordinarily difficult to bring about because of the burden of criminal law.
“It is fair to say though that you can't find them in the current legislation. And, yes, OK, it's our fault.”
The scandal is not the first to engulf Barclays bank, which in 2006 was at the centre of a series of tax avoidance scams that saw £300 million having to be paid to the Irish Treasury. Despite having broken rules in the UK, HMRC are believed to have levied no penalty on the bank.
One of the schemes that experts estimate cost the UK taxpayer £1.5 billion in unpaid tax was headed by the aforementioned Naguib Kheraj.
Mr Kheraj rejoined Barclay's in April last year after a discussion with under fire Chief Bob Diamond. The position of vice chairman, working with Mr Diamond and finance director Chris Lucas, was created specially for him.
Commenting at the time, Mr Kheraj said: "I spoke to Bob after I decided I was going to leave Lazard. He said if I was interested in doing something part-time, he would be interested in exploring it."