THE head of Britain’s oft-criticised private equity industry has slammed Libor rate-rigging as “a disgrace” – but warned that over-reaction by regulators to financial scandals risked throwing the UK’s economic recovery off course.
Mark Florman, chief executive of the British Private Equity & Venture Capital Association (BVCA), said that, despite serial banking scandals, it was important that politicians and regulators “held their nerve” in order to focus on the macro challenges.
Asked if his organisation’s 500 members had felt Libor-manipulation had set the banking scandal bar at its highest, Florman said: “I think it did. I cannot think of a scandal that has had a greater effect. It shocked us.
“I was taught the London Interbank Offered Rate [Libor, the rate at which banks lend to each other] is the price of money. To manipulate it harms borrowers or savers everywhere. It was an utter disgrace.”
Florman, a former Conservative Party treasurer who has been head of the BVCA for the past 18 months, said he was also unhappy about the scandal of interest rate swap mis-selling to small businesses.
But he warned against regulatory overkill in response, saying: “Despite these [scandals], however galling it is, you need to look at the bigger economic picture.”
He said he supported the Vickers report recommendations to ringfence retail from investment banking, and the creation of the Parliamentary Commission on Banking Standards to examine what industry changes are needed.
But he added that while public and political anger was understandable, there was a danger of regulators failing to see the adverse effect on UK competitiveness and the economy of too harsh a swing of the regulatory pendulum.
He said: “There is a risk that the secondary impact is not thought through. For instance, I believe banks should have lower capital ratios in weak economies like ours. In booming economies you should have higher ratios.”
Instead, he said he agreed with those who argued for society to “keep its nerve” in response to the scandals, so that the UK’s economic recovery was kept on course. “Just appeasing politicians is not the right response, especially in severe economic times,” he said.
The BVCA chief’s attack on Libor manipulation come as Royal Bank of Scotland is braced for likely hefty regulatory fines, estimated at up to £350 million, for the suspected participation of its traders in the scandal. Fines have already been levelled on UBS of Switzerland (£940m) and Barclays (£290m).
RBS, meanwhile, declined to comment yesterday on reports that it is to ask the European Commission for an extension of its 2013 year-end deadline for selling more than 300 branches as the price for its taxpayer bail-out.
That came as one of the bidders for the branches, a US private equity consortium of JC Flowers and Apollo, was reported to have lined up David Morgan, former head of Australian banking giant Westpac, as chief executive of the new entity if its bid is successful.
Morgan is head of JC Flowers’s European and Asian arm.