Libor Unplugged

LONDON – Last year’s Libor scandal was a shock to the body politic in London. Despite all that had gone before, the public and their representatives were stunned to learn that bankers had systematically undermined the foundations of a global market benchmark – one with London in its name to boot – for personal gain. Britain’s Chancellor of the Exchequer, George Osborne, felt compelled to launch a parliamentary inquiry. On June 19, after a year’s work, the Parliamentary Commission on Banking Standards finally laid a large egg.

Bankers will certainly regard the outcome as what in England we like to call a “curate’s egg” (served a rotten egg by his bishop, a young clergyman, when asked whether the egg was to his liking, replied that it was “good in parts”). They will choke on the commission’s recommendation of a new criminal offense for reckless conduct that leads to taxpayer bailouts, reinforced by a new “senior persons” regime that would ascribe all bank functions to a specific individual, who would be held personally liable when things go wrong.

The commission argues that “top bankers dodged accountability for failings on their watch by claiming ignorance or hiding behind collective decision-making.” Its members aim to make that impossible. If they have their way, behaving recklessly with banking assets will result in a prison sentence, with no Monopoly-style “get out of jail free” card for financial masters of the universe.

I can already hear the sound of lawyers sharpening their pencils: the offense must be defined specifically enough to withstand a human-rights challenge. But, if implemented, the commission’s proposed regime would certainly be tougher than what is now on offer in New York or other banking centers. And British MPs are noticeably impatient with what they consider the glacial pace of change in global regulation; they want action now.