Who wins when Diamond falls?
David Cameron and George Osborne
The chancellor is trying to remain undamaged by the growing Libor scandal, but he has several significant weaknesses to overcome. Firstly, he regularly called for less regulation of the financial and banking sectors while he was in opposition. So far, Tories have been able to neuter this attack with the counter-charge that Labour didn't regulate the banks enough. It is an unappetising spectacle, watching both sets of MPs attack each other for their record, but it's the only way they can make sure they don't get stuck with all the blame.
So far, Osborne's response has been vocal but minimal. While he talks tough on bank misbehaviour, he has restricted concrete action to its bare essentials. The Vickers report will be mostly implemented and sped up. There are severe concerns about how effective it will be – specifically on the decision to build a firewall between retails and investment areas of banks, rather than separating them altogether. Labour also has a nifty, if technical, argument about the chancellor's decision to put complex financial derivatives in the retail section – precisely the sort of rule which allowed Libor to happen.
Most experts warn that banks will jump over, burrow under and drill through that firewall anyway, no matter what you put on either side. Osborne's excuse for not going further is that Vickers only recommended the firewall, rather than full separation. It's telling that where people once encouraged the chancellor to go as far as the report suggested, he is now using it as a shield to do the bare minimum.
In addition to implementing Vickers, the chancellor started twin inquiries yesterday. The first was the joint parliamentary inquiry under Treasury committee chair Andrew Tyrie. This was pegged as looking at banking culture, but its chair strongly suggested it would be restricted to the Libor scandal and how it came about. The second was Martin Wheatley's review of governance of the Libor interest rate. They will feed their conclusions into the banking bill at the start of next year.
On a broader level, the scandal is harmful to the coalition government because it plays to Labour's political strengths and Osborne and Cameron's political weaknesses. While the fixing of the interest rates may have taken place before the coalition came to power, it emphasises the sense of an elite class of bankers making extraordinary amounts of money while behaving immorally. Fairly or not, Osborne and Cameron are tied in with that vision of privilege and any scandal along these ideological lines is innately damaging to their brand.
Ed Miliband and Ed Balls
The chief victor of the Diamond resignation is arguably Miliband, who broke ranks to demand the Barclays boss' resignation while Cameron and Osborne restricted their criticism.
It's not the first time the Labour leader has managed to lead the agenda on a major scandal. He was on the front foot on phone-hacking, when he called for what became the Leveson inquiry as well as the resignation of Rebekah Brooks and the cancellation of News Corp's BSkyB bid. He was similarly ahead of the curve on Stephen Hester's bonus. It appears that major rows play to the Labour leader's strengths.
But Miliband has a problem. For a start he is playing a dangerous game by pledging to vote against Osborne's joint parliamentary inquiry. The Labour leader is demanding an independent judge-led inquiry instead, but the public may just see the opposition's actions as needlessly obstructive – especially if Osborne presses home the point that it was during Labour's time in power that bank regulation failed.
Labour will lose the Lords and Commons votes on the inquiry but chairman Andrew Tyrie has already said he is not prepared to go ahead without cross-party consensus. If he sticks to his guns Labour might secure the independent inquiry. That would be even more damaging to Miliband, as he endures anything up to a year of bad headlines about Labour's capitulation to banking interests pre-2008. It will not be disconnected from the current leadership either – Balls was City minister when the scandal took place.
As George Osborne said: "I think the people who would be most afraid of where any inquiry goes will be the people who were in charge at the time. No-one more than me would like to see Ed Balls in the dock."
The reputation of Britain's bankers was already at rock bottom and now it is even worse. Diamond seems to have resigned in time to spare himself the worst of the public vitriol – a la Fred the Shred – but the reputation of the bank itself is in tatters.
Even its response to the scandal has been weak. Marcus Agius, who resigned yesterday as chairman, is now apparently staying on to find a successor, causing much mirth and sarcasm online. And while it may seem a superficial point, the names of the men at the top are jaw-droppingly ripe for satire and mockery – from Diamond himself to his possible successor Rich Ricci. Such details are what TV chat show fodder is made of.
On a PR level, the response to the crisis has been less than exceptional. Barclays' press officers seemed as shocked and confused as everyone else this morning when Diamond's resignation was announced. His statement – that "external pressure placed on Barclays has reached a level that risks damaging the franchise" – seeks to avoid any culpability, exhibiting complacency even at this late stage. Reports that banking analysts at Investec marked his departure with a research note entitled 'Mob Rule' will not help matters either.
The only banker to emerge with much credit was Sir Mervyn King, the governor of the Bank of England. King has an uncanny ability to stay ahead of the game – not-so-subtly voicing a Tory agenda in the run-up to the 2010 general election and now issuing extraordinary attacks on the banking industry. His attack on the "excessive levels of compensation, shoddy treatment of customers and a deceitful manipulation of one of the most important rates" was arguably the most eloquent attack on the sector since the Libor scandal broke. But it also gave cover to Miliband, who was able to go further in his criticism.
Most importantly, the entire process of Diamond's resignation is a remarkable shift in the balance of power between the banking sector and Westminster. Not so many years ago it would have been inconceivable that the boss of a major bank would step down due to pressure from politicians. Now it has happened, you'd have to be foolhardy to suggest Diamond will be the last.