Sonar Bank

Barclays Bank has been heavily advertising their new personal banking system using phone transfer applications to pay bills or debts no matter how small. Ping it will enable billions of transactions to be made in an instant using mobile phone communication. Combining computerised banking systems with cellnet telecommunications looks like a mega-disaster waiting to happen with Murphy’s Law coming in to play. The recent O2 cellnet collapse and loss of 3g services shows how vulnerable the ping application is.

O2 is the second biggest network in the UK and the repercussions of the technical problems have been wide-ranging with huge compensation bills likely. Parts of London’s bicycle hire scheme – sponsored by Barclays – failed because the card payment system is linked to O2’s network. Tesco Mobile customers were affected because they use the O2 network. The problem also affected the BBC IPlayer service and then resulted in the BBC website crashing. Some O2 customers could not access the internet, text messages, or make and receive calls. The problem also affected the system used to monitor criminals who wear electronic tags. The box in the wearer’s house uses the O2 network to communicate with the control rooms at Serco and G4S who are contracted to provide the service for the Ministry of Justice.

The total meltdown of Royal Bank of Scotland group computers, which crashed due to an inexperienced technician in India, show how vulnerable bank accounting systems are. Ulster Bank of the RBS Group is still not providing a service to customers. RBS has experienced a second but unrelated computer breakdown that affected Thinking Bank customers. Get the cellnet and bank computer crashes happening together and the 2008 financial crisis will look like peanuts. Even additional pressure on the systems due to increased use by visitors to the Olympics can cause crashes. Hacking from China or cyber terrorism with the deliberate aim of a 1929 type collapse is a credible threat. We must hope that GCHQ, OFCOM and FSA have got their acts together to prevent any intentional or unintentional collapse of the developed world’s life-support system. On past experience they will be in denial and on the back-foot when it happens.

SOund Navigation And Ranging was developed to detect objects on or under water using an original wave and a reflective wave. A pulse of sound or ping was sent out and the echo returned. Sounds very much like the Chairman of Barclays, Marcus Agius, who resigned the Chair one day only to return the next day as Executive Chairman following the resignation of Barclays Chief Executive, Bob Diamond. With a ping it account and a ping it Chairman Barclays is now the Sonar Bank.

The Commons Treasury Select Committee has so far only scraped the surface of the Libor scandal with their initial enquiry focusing on the actions of Barclays and the Bank of England. The evidence given by everyone has been inconsistent and patently self serving. In particular the Deputy Governor of the Bank of England; Paul Tucker’s body language when answering questions – that is, sitting with arms crossed in front of his chest – indicates that he was being defensive and less than open. His denial that the Bank of England was aware of the interest rate fixing was contradicted by minutes showing that they knew what was happening. His explanation that the minutes did not reflect the B of E opinion that there was an aberration but no systematic or institutional misbehaviour reflects badly on his competence and is at odds with subsequent revelations. Documents obtained by Reuters news agency show that the US Treasury Secretary pressed the B of E in 2008 to make changes to the way that Libor was set. These recommendations were passed on by the B of E to the British Bankers Association. Marcus Agius also resigned his Chairmanship of the British Bankers Association but so far nobody has asked the obvious questions; why was the same person holding both positions and wasn’t there a conflict of interest? There is evidence that a whistleblower at Barclays informed the BBA who must have been aware of the interest rate manipulation.

The New York Federal Reserve Bank is keen to show that it took prompt action four years ago to highlight problems with Libor. The Financial Services Authority report that as early as 2005 there was evidence that Barclays had tried to manipulate dollar Libor and Euribor rates at the request of its derivatives traders and other banks. Misconduct involved staff in London, New York and Tokyo along with external traders. There is also evidence that using the nod and a wink method of communication banks were instructed to reduce Libor to avoid negativity and specifically Barclays was told not to “stick its head above the parapet”. We laypeople might not understand what that was intended to signal, but the professionals at Barclays were in no doubt. Unfortunately public officials like to couch instructions in an ambiguous phraseology – it is called deniability.

Bob Diamond was keen not to lay blame on the B of E but Marcus Agius and Mervyn King felt able to be highly critical of Bob. What is clear is the lack of formality in the e-mails between Bob and Paul, who were matey and on first name terms. Both are keen not to upset anyone and to ensure that they are employable in the future. Mervyn King, the B of E Governor, is either incompetent or parsimonious with the truth when he claims that he did not know what was going on. It was common knowledge in the wine bars in the City frequented by currency and investment traders. On receipt of the communication from the US Federal Reserve he says there was no evidence of wrong doing and therefore no need to take action other than pass on the concerns to Marcus Agius at the BBA. Any other responsible monitor might have thought it prudent to find the evidence. Nobody comes out of this with any credit. There has not been enough scrutiny of Marcus Agius or the Board at Barclays.

How are the Board at Barclays going to repair the damage? Rumours are various including the Bank being split in two with Barclays Capital floated as a separate company in New York were most of its business is located. Their investment chief, Rich Ricci, is no longer favourite to become Chief Executive – even his name is against him. The betting is on an experienced retail banking contender to take control and send out a strong message about where the Bank is to focus its activities. However, none of this will be effective unless Barclays returns to its Quaker roots of honesty and integrity.

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