Deeper Libor trouble

The more we learn about the Libor scandal, the more serious it becomes. Robert Peston’s suggestion that during the financial crisis, Barclays traders thought they were manipulating Libor under instruction from the Bank of England takes matters to another level.
 
It should be stressed that the Bank is indicating that it offered no such instruction. But the fact that Barclays traders, at least at one point, believed their behaviour was sanctioned does show that these abuses were not simply the work of a few bad apples.
 
Politically, the parties are battling to show which is best placed to drain the financial swamp. As I say in the Mail on Sunday, those close to Ed Miliband feel that this could be a defining moment for him. Miliband has already called for Diamond to go and for a public inquiry into the banking industry. He is now, I understand, considering pushing for the total separation of investment and retail banking; Vickers Plus as Labour sources call it. Labour might well also call for the big banks to be broken up.
 
There are risks to these positions. They might well lead to some banks saying they would leave Britain if Labour won the next election. But Miliband seems to be inclined to take them. Strikingly, his call for Diamond to quit came after a conversation between the two men.
 
The Tories for their part want to emphasise that these abuses took place not only under a Labour government but under a new regulatory system that it had introduced. They are undoubtedly right that the regulatory system introduced by Gordon Brown and Ed Balls was deeply flawed. But, they’d be well advised to have more of a clear offer on what they’ll do now to clean up the City.
 
This is important both for London’s international reputation as a financial centre and for the Tory’s political prospects. The biggest worry that Tory supporters have — albeit, according to Labour’s internal polling — is that the government is not doing enough to sort out the banks.
 
One other thing to watch in the next few days is what the Liberal Democrats do. At the moment, the Liberal Democrats are not trying to differentiate their response from the government’s official response. Cable’s language — ‘cesspit’ — might be more dramatic but there’s little substantial difference between what he’s saying and the Cameron and Osborne line.