British banking continues to be insufficiently dull.
First of all, the Royal Bank of Scotland’s IT troubles continue to engage the attention. The Register (and some private sources) indicate that the payments file probably wasn’t corrupted. What seems to have happened was that an update to the either batch schedule or the batch scheduling software (CA 7) went wrong in some horrific way. I’ve read speculation that the batch schedule had to be partly or completely rebuilt, but I haven’t heard any reliable sources say it.
Control of the batch appears to be split in some organizationally logical but externally arcane way between Scotland and India. I don’t know if this caused the problem, exacerbated its effects, extended its duration, hindered the investigation, or damaged the solution. I’d be willing to lay money on the fact that it didn’t improve things, but I think we’ve seen enough gambling for the moment.
Sadly, it’s not yet all over bar the shouting. Up to 100,000 Ulster Bank customers are still without access to their accounts. A statement from RBS includes this rather alarming bit:
Unfortunately for our customers in Ireland, Ulster Bank payments follow in sequence after those of NatWest and RBS. This is because of the way the technology was set-up at the time the three banks were integrated. It in no way reflects the priority we attach to our Ulster Bank customers and we regret any confusion this might have caused.
If the processing sequence matters, then the batch isn’t right yet. More evidence of this is the fact that some RBS customers seem to be making personal loan payments twice.
Still, this is fishwrap, because British banks are not just failing to be boring this week—they’re being actively interesting. Entertaining, even.
It seems that Barclays Bank (and, possibly, others) has been attempting to manipulate the London Interbank Offered Rate (Libor) over the past few years. Manipulation has at least been even-handed: they’ve tried to both push it upward (to increase profits) and downward (to decrease perceived risks), depending on economic circumstances
What, you may ask, is Libor? From the Beeb’s useful Q&A page:
Every day 16 banks submit the interest rate that they are charged to borrow money. The four highest rates and the four lowest rates are ignored. The average of the eight remaining rates makes up the Libor rate.
So banks are self-reporting a rate that is then used to measure the economic health of the City, determine interest rates on other loans, and thus value their assets and liabilities. The fact that the banks are in competition, and the process of discarding the high and low rates, should produce honest figures.
Well, relatively honest figures. The (British) Financial Services Agency says that the Barclays’ manipulation ‘could have caused harm’ and dinged the company for £59.5m (No one knows how they arrived at that sum.) The US Department of Justice says Barclays actually did affect rates, and levied another $160m. (I believe the DoJ. It has less reason to hide the truth.)
In a rare show of public dysfunction, senior members of the Barclays board have done various forms of resigning, unresigning, and generally playing around in the revolving doors while the security guards watch:
The chairman resigns to save the CEO. The CEO makes a public threat to drag the central bank into the mire. And the previous government. And the Treasury.
Next morning, the CEO resigns and the chairman re-installs himself to “oversee transition”. The police, who said they could not prosecute, now say they might.
This is all very entertaining, the way a good British scandal generally is. But as the last article I linked to above explains, it’s also damaging the British economy. Barclays is the largest lender to small and medium-sized businesses in the country.
The results have been felt in every community in Britain. Four years ago, Barclays was lending £52bn to non-finance, non-property businesses in the UK, 27% of all loans.
Now the figure is £38bn, and just 16% of business loans. In the process the bank - single handedly - has taken £3bn of capital out of manufacturing, more than £3bn out of retail/wholesale, while ploughing an extra £10bn into home loans and £6bn into property.
Those businesses without credit aren’t expanding, ordering new equipment, or hiring staff. Those equipment orders and salaries aren’t, in their turn, helping the economy bounce back either. Once again, banks’ decisions to be clever, profitable, and interesting have left ordinary customers in the soup.