The real reason the LIBOR banking scandal won't go anywhere

The banks are not most peoples favourite organisation at the moment, and banker bashing is pretty much becoming a national institution across much of the Western World, and yet there is one example of their abhorrent approach to business that is only really getting fairly minor play in the mainstream press, yet it is the one that strikes deepest into the soft underbelly of the global financial giants. There is a reason for this, but before we get to that, lets have a little background on this problem. The London Interbank Offer Rate (LIBOR) is the rate at which banks lend to each other and is a crucial measure of how much money costs. It is the basis for how easy or difficult it is for banks to raise finance and therefore to lend. The LIBOR is managed by the British Bankers Association (BBA) in the UK and by similar organisations around the World. So far so good, but there is a less well known aspect to this that may come as a bit of a surprise.

The British Bankers Association is, as you might expect, made up of senior bankers from the key UK banks, and it operates to regulate bank activity, but what is less well known is that it is itself unregulated. This is not a Government quango or body, but simply a semi-formal club. As such it has no responsibility to anyone but the banks and therein lies the problem. The way LIBOR works is that the banks voluntarily report the rates that they lend to and borrow from each other, and these rates are averaged over a period of time to establish internationally the interbank lending rates. In theory at least the BBA is responsible for ensuring the accuracy of this information and indeed employs auditors for that purpose. It now appears that at least some of the major banks in the UK have been less than accurate in their reporting of these rates, using that inaccuracy to take advantage of the money markets to make even more profit than they already do.

This in itself is bad enough and would certainly be a major news story globally and would almost certainly lead to criminal investigations and proceeding against some pretty senior banking establishment figures, but that isn't happening and here comes the real kicker. It would appear that not only were some banks being less than honest, but that this was happening with the tacit approval of the Bank of England, the UK central bank. This causes major issues for the whole system not just of banking but of politics as well. The Bank of England does not operate in isolation but is a key player in the International Monetary Fund (IMF) and the World Bank. It would not have allowed this without approval throughout the chain of command so if the Bank of England is tainted in this then so is the Federal Reserve and the European Central Bank, and so are the senior politicians whose job it is to monitor bank activity and national and international money supply. In the UK this is the treasury, almost certainly the most high profile of all of the ministries of Government.

Calling into question a few rogue bankers lending to the wrong people, or a few politicians with their snouts in the trough is one thing but potentially bringing down the entire global banking system is quite another, and that is why this story will just quietly die and nothing will be done. No matter how much we might wish it were different.