Bank of England: Libor System

Lord James of Blackheath Excerpts

Thursday 17th November 2022 Grand Committee

Asked by

[Lord James of Blackheath]

To ask His Majesty’s Government what steps they will take to ensure that the Libor system remains available to be exercised by the Bank of England in the event that inter-bank lending is at risk of collapse.

[Lord James of Blackheath (Con)]

My Lords, during the three weeks or so since I entered the ballot for this slot, I have continued to maintain close contact with practitioners in the Libor market, as I support the case for a final resolution of the Tom Hayes case and press the argument to confirm the cancellation of his conviction. At present, he appears to be the only person alive in the world who has ever been convicted of a Libor offence. Everybody else has been acquitted and had their convictions cancelled. Indeed, in the USA, Libor manipulation is no longer regarded as a convictable offence.

Having continuous access to current opinions within the Libor community, I am beginning to consider that I am perhaps wrong in submitting my Question at present. There are too many uncertain factors surrounding this whole issue. First, there is no available market indicator as to the extent to which new Libor initiatives may have to be undertaken in the near future. It is too soon to ascertain whether any new initiatives will be required, arising from the present troubles in the world.

Yet these queries, however speculative and counteractive they may be to undertake, confuse the whole current Libor market. It is massively overstaffed at every level, and nobody knows who is supposed to be in charge on any initiatives. The market needs to be undone, taken apart and restored again, but not as a continuity of what we have. My principle, in seeking to wipe out what we have and start again, is a sensible proposal to run with, but we need to go back to basics.

For example, consider how very little we know of the actual incidence and effect of Libor for all or any portion of the near-80 years since its inception. Consider that we do not know how many Libor initiatives have been authorised or undertaken with official sanction, presumably, but not certainly, from the Bank of England. How many of these remain current, have been resolved or remain unresolved—that is, short-term funding not yet fully repaid? How many failed, and for how many were the rescue attempts successful? If we are to carry on in any form, we need a full and definitive report on what has happened in those 80 years and what we are left with.

I suspect that a good many did not work, and we have never been told their story. What indemnity arrangements remain in place to be utilised, not least to help those who allowed their funds to be used in a rescue and, presumably, have lost them? That is a great question to which we have never heard the answer.

If, at some point, an attempt is launched to terminate Libor, what effect would that have on existing unresolved cases? I am particularly concerned that we need to have an answer about what we will do for the future. A strange organisation called the Federal Reserve Bank of New York, which is not federal, not reserve, not New York and is not a bank—otherwise there is nothing wrong with it—is making a plea to the Federal Reserve, seeking the backing of the American Government to take over the entire Libor operation worldwide. We do not want anything to do with it. That is one reason why we might want to think of winding up now, so that we can take our own initiative, new and fully minted, with the Bank of England onside.

All these matters require close debate with the official bodies concerned, such as the Bank of England and the CSA. I now believe that my initiative in tabling this Question was premature for the reasons I have given. I request permission to withdraw it, but with the very strong recommendation that we now make separate approaches to the Bank of England and the CSA, and ask them to do their own assessment of the current status of the Libor market—its effectiveness and the extent to which there are unresolved issues out there in Libor initiatives which have been taken but are not yet resolved, of which I suspect there a good many, where funds are irrecoverable or have been misplaced. We need a definitive picture of what the Libor market looks like at this time. Let us not proceed to start the wind-up now, but let us get a definitive position on what the market shape and state is. I suspect it is in an awful mess.

I urge that exploratory initiatives are launched with the key bodies. We need an inside track on these matters so that we can redesign a Libor market which works for us. We also need to be sure if we do this that we are not cutting across unresolved issues, such as winding-up arrangements for banks which fail to survive the initiative, of which I suspect there are quite a few; that any mergers which were created as a wider solution are not interfered with; and that any banks that have been repaired can continue in good order without any interference. This is a very complicated situation, and we need a proper fix on what we have to deal with.

I thank noble Lords for allowing me to share my interest in these matters with them. I am very concerned by what I have seen in the five years of close association I have had in pursuing the Tom Hayes case—the only person to have been convicted in this country. He got 12 years; he served five and a half years. He now has multiple sclerosis and is in a very poor way indeed. We need a final resolution of his case, and I am sure we will. We have a date for the Criminal Cases Review Commission to review it in November and that will be very welcome.

I thank noble Lords for letting me speak to them today. This is the first time I have spoken on any subject since my brain haemorrhage in August. I know that anxieties were expressed as to whether the stress of talking to noble Lords might have any further implications, but I am feeling fine. There is an issue here. It must not be dropped. It is urgent. We need to attend to it. Please let us proceed and I will give any help to anybody who asks for it.