A clock displays the time just after midday, opposite the Bank of England in the City of London
A clock displays the time just after midday, opposite the Bank of England in the City of London March 10, 2011.

So it wasn't an arched eyebrow after all?

Two hours of stumbling, contradictory and at times embarrassing replies from Barclays chairman Marcus Agius at Tuesday's Treasury Select Committee hearing at the very least brought us one step closer to understanding the Bank of England's role in former CEO Bob Diamond's resignation.

Governor Mervyn King himself, it emerges, called Agius into Threadneedle Street for a conversation in which he directly told Agius that the Barclays CEO "no longer enjoyed the support of the regulator".

Hang on a minute.

Neither King nor the BoE regulate Barclays - at least not yet. Why was the BoE Governor, then, commanding audiences with the chairman of a publicly-owned, solvent financial institution for which he had no specific legal responsibility?

The question is largely rhetorical, but worth exploring nonetheless. King got involved because he felt it his duty to remain intricately involved in the defining issues of such an important cog in Britain's financial system. Fair enough. But it's a bit late in the game, isn't it?

The Wall Street Journal raised Libor red-flags back in 2008.

On 28 April, the New York branch of the US Federal Reserve, run by then-President and now Treasury Secretary Tim Geithner, held a "fixiing libor" meeting in which at least 8 senior borad memebers were invited. This was *after* the Fed had reviewed the accuracy of libor submissions from Barlcays.

"In the spring of 2008, following the failure of Bear Stearns and shortly before the first media report on the subject, we made further inquiry of Barclays as to how Libor submissions were being conducted. We subsequently shared our analysis and suggestions for reform of Libor with the relevant authorities in the UK," a Fed spokesperon told Reuters.

On 13 May of that same year, Bloomberg published a piece entitled Libor Set for Overhaul as Credibility Is Doubted. It quotes from former Barclays Capital trader Tim Bond. ''The Libor numbers that banks reported to the (British Bankers' Association) were a lie" he said of submissions during the financial crisis. "They had been all along. The BBA has been trying to investigate them and that's why banks have started to report the right numbers."

The BBA's Angela Knight addressed the issue of libor inaccuracies *during* testimony to the same committee of ministers (different bodies, same title) that now professes shock and indignation at the very idea that libor wasn't purer than the driven snow. "We have not run away or hidden from the need for reform or the need for review".

And that only makes the testimony Monday of Deputy BoE Governor Paul Tucker all the more pathetic.

Tucker's naïve claim to have never been previously aware of any jiggery-pokery in the bank controlled, privately auctioned process for lending between banks known as Libor is astonishing on its face.

When put against his conversations with Diamond, during which he took a granular interest in the bank's funding costs, it seems downright fantastic.

When asked what he thought of the November 2007 minutes which raised the issue of libor accuracy, Tucker said it "didn't set alarm bells ringing".

It's worth remembering that the financial crisis had rumbled to life that summer, with the freezing of withdraws from two BNP Paribas investment funds linked to the US mortgage market in early August. By the first of September, libor rates were touching 8.5 year highs in London trading. And this was still 13 months before the Lehman Brothers collapse.

So what we're led to believe that in November 2007, with the FTSE at a near decade high and the S&P 500 less than a 100 points from its historic peak, Tucker gave scant consideration to the idea that some banks might not be telling the truth regarding their day-to-day funding despite libor rates that had rarely been higher?

And we're supposed to accept that neither King, nor Tucker nor Diamond were aware of dishonest activities in the libor market until now - despite the sworn testimony from the head of the BBA and a direct quote from a former Barclays executive in the most-read business information provider in the world?

Agius himself was only slightly more plausible when he told the Treasury Select Committee that he became aware of an investigation into Libor practices in April of 2010 and that the matter had escalated to the level of criminality in "early 2011".


I'm prepared to take all of them at their word - including Tucker, the only man in the trio of witnesses who has a future career in the City.

And that's why he has no business running the Bank of England when Governor King steps down next year.

The House of Lords have just passed their second reading of the UK's Financial Services Bill which would, in effect, hand a great deal of the current regulatory power of the Financial Services Authority back to the BoE, which would become the country's de facto financial watchdog.

The Libor scandal - of which we've really only scratched the bare surface - is a great reminder of why this is such a bad idea.

Michael Lewis, the world's most famous business writer and the author of "Liar's Poker" and "Moneyball", said it best when he described the reason why Wall Street veterans Jimmy Cayne and Stan O'Neal continued to play golf each day even as their beloved investment banks were burning to the ground.

"It wasn't that they didn't *care* that their firms were collapsing ... they didn't *know* their firms were collapsing."

I'm not comparing the leadership of Bear Stearns to that of the Bank of England, but there is a similar, cavalier attitude toward the kinds of risks the Bank would be expected to police. And, indeed, the culture it seeks to change.

The actions - and inactions - of King and Tucker are a shocking indictment of the Bank's ability to comprehend, let alone police, a London's financial markets.

Thanks to his naiveté and his at-times obstructionist performance, Britain's bookies have pushed the former favourite to succeed King into second place behind the rising fortunes of Sir Gus O'Donnell, a Cabinet Secretary to three different Prime Ministers and one-time British economic representative to the International Monetary Fund.

He's a well-credentialed man. Hugely respected. Confident. Urbane. And utterly unsuitable for the role as British lawmakers have designed it.

The events of the past two weeks - from the sophomoric questioning of MPs to the amnesia-inspired responses of the bank executives to the breezy ignorance of the policy makers - must convince us of at least one thing: our gatekeepers aren't nearly as slick as the poachers they're meant to catch.

And that's why Chancellor George Osborne needs to seriously consider appointing someone well beyond the box of conventional wisdom as the next head of the Bank of England. Someone from the "inside" of global finance who isn't tainted by scandal but understands the modern practices of investment banking. The poacher turned gamekeeper.

Jim O'Neill, the chairman of Goldman Sachs' asset management arm and the former chief economist of its investment bank springs to mind, but the public endurance for yet another Goldman alum in public policy may be nearing its peak.

Step forward Lord Mervyn Davies, the 60-year old former chairman and CEO of Britain's one (and perhaps only) shining beacon in the murky world of global investment banking: Standard Chartered. Untouched by scandal, unstained by huge bonuses for poor performance, outside the cosy club-tie world of the City and unparalleled in terms of knowledge and experience.

It'll never happen, of course, but it should.