The Treasury Select Committee has questioned Bob Diamond, who this week resigned as Chief Executive of Barclays, following the news that Barclays had paid £290m in fines to the Financial Services Authority (FSA) in the UK and to two American regulatory authorities, as punishment for making false submissions to the setting of the London Interbank Offer Rate (LIBOR).

LIBOR is a measure of the interest rate at which banks lend to each other. It is an indicator of the health of the financial system, and many financial instruments around the world are linked to it. The contributing banks submit the interest rates at which they can borrow from other banks, and the British Bankers' Association averages them to make LIBOR. The higher a bank's LIBOR submission, the more risky it is thought to be.

The higher LIBOR overall, the more risky the banking system is thought to be. It has emerged from the regulators' investigations that (i) individual Barclays' traders were asking Barclays' LIBOR submitters to submit false estimates to benefit their own trading positions from 2005 to 2007, and sproadically until 2009 (ii) Barclays as a whole was making inaccurately low LIBOR submissions between September 2007 and April 2008, to counter media speculation that it was experiencing financial difficulties, and (iii) Barclays made inaccurately low LIBOR submissions again in October 2008, acting on what one senior Barclays figure mistakenly interpreted to be an instruction from the Bank of England.

The key question for Bob Diamond, is what he knew about, and when. Were these the actions just of individual rogue traders or middle managers acting without authorisation from the top, or did Diamond know about it all along?

David Ruffley MP asked the key question in the committee hearing. The "lowballing" - making inaccurately low LIBOR submissions, was going on well before the misinterpreted conversation with the Bank of England. So when did Mr. Diamond know about the "lowballing" that was going on from September 2007 to April 2008?

The transcript of David's exchange with Mr. Diamond is below. The exchange was widely covered in the media:

Daily Telegraph http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/9374516/Bob-Diamond-questioned-by-MPs-on-Barclays-Libor-scandal-as-it-happened.html

BBC News http://www.bbc.co.uk/news/business-18708226

http://www.bbc.co.uk/news/business-18704239

The Guardian http://www.guardian.co.uk/business/2012/jul/04/libor-bob-diamond?newsfeed=true

Q94 Mr Ruffley: Mr Diamond, on page 3 of the FSA notice it says, 'Barclays acted inappropriately in breach of Principle 5 on numerous occasions'-that is principle 5 of the principles of business-'between September 2007 and May 2009 by making LIBOR submissions which took into account concerns over the negative media perception of Barclays' LIBOR submissions.' I am going to use the shorthand 'lowballing'. Okay?
Bob Diamond: Yes.

Q95 Mr Ruffley: Fine, so I do not have to repeat that. In relation to that, the FSA go on to say on page 3, which I am sure is burned in your memory, 'Senior management's concerns' about what other banks were doing-perhaps not telling the truth, as Mr Fallon has referred to-'resulted in instructions being given by less senior managers at Barclays to reduce LIBOR submissions in order to avoid negative media comment.' That was going on well before 29 October 2008 and your telephone call with Paul Tucker. Is that correct?
Bob Diamond: Yes.

Q96 Mr Ruffley: It has to be, because that is what the FSA reported. Can you tell us when you discovered that this lowballing activity was going on?
Bob Diamond: During the investigation.

Q97 Mr Ruffley: So you did not know it was going on when you spoke to Mr Tucker on 29 October 2008.
Bob Diamond: No. That would have been before the investigation. So I was not aware of it.

Q98 Mr Ruffley: Okay. When did you discover? You say in the course of the investigation. What month approximately?
Bob Diamond: There are two things that happened, David, so I have to go back. Soon after the credit crisis, so into 2009, there was a request from the CFTC to investigate-I might be using the wrong word 'investigate'-to do a study.
Mr Ruffley: Investigate will do.
Bob Diamond: It was during that, when both the situation of the credit crisis 2007-08 was part of what I was learning going through the investigations-

Q99 Mr Ruffley: Forgive me, I do not wish to be rude in interrupting, but give me an approximate date when you discovered this lowballing-which is the subject of the FSA notice; that is why you have been fined and that is ultimately one reason you have lost your job, Mr. Diamond-was going on. It is simple question: approximately.
Bob Diamond: The findings of the investigation, other than things I learned as a witness-please, this is important, David, I should be able to answer-came to me four or five days before they were published. I wasn't alone in that but other members of management, because of the conversations we have been having as witnesses, were not over the Chinese wall. My job was to make sure that we had the investigation going on as it was reporting to the board. I think as I explained to the Chairman-

Q100 Mr Ruffley: With respect, for the third time, what month did you discover that the lowballing was going on? Just give me a date.
Bob Diamond: This month.

Q101 Mr Ruffley: This month? As late as this month. It raises the question why on earth you as Chief Executive did not know that this was going on on your watch? You said to an earlier question that you had daily reports on LIBOR.
Bob Diamond: I think this refers to-
Mr Ruffley: We know what it refers to. We are talking about the lowballing and I defined that at the start of this questioning.
Bob Diamond: Let me put it in context. I think that is fair. These are important questions and we should not rush through them. If you look at the period 2007-08, again using the same charts that we all have but without going through them, in almost 90% of the cases in that whole period-

Q102 Mr Ruffley: No, with respect, you have made that point. You have said this many times and it is on the record; we don't need to repeat it, with respect. It was high relative to other banks. The fact remains that the FSA said, notwithstanding the fact that it was high relative to the other banks, that it was still a breach of principle 5. You accept that, don't you?
Bob Diamond: Yes, and-

Q103 Mr Ruffley: Yes, okay. I want to make some progress on this.
Bob Diamond: Can I say one quick comment? That I do agree with you-
Mr Ruffley: Thank you.
Bob Diamond: The reports that came to me daily were the rate of LIBOR, not the relative ratings.

Q104 Mr Ruffley: But why did you not follow up with Mr-appropriately named-del Missier? He got the wrong impression; no one is disputing that. Did you have any discussions with him afterwards, because you copied this to him on 30 October, didn't you?
Bob Diamond: Yes.

Q105 Mr Ruffley: You had no discussions with him about what he had taken away from that copied e-mail, which was your conversation with Paul Tucker.
Bob Diamond: This was not the first time Jerry and I had had discussions-

Q106 Mr Ruffley: No, after he saw it on 30 October.
Bob Diamond: I was not aware that Jerry had a miscommunication or a misunderstanding. Jerry did not say that to me.

Q107 Mr Ruffley: Didn't you discuss with him, after you had copied that e-mail to him, the contents of the Paul Tucker note that you did?
Bob Diamond: As I have said, my main focus in that note was the issue with Whitehall and discussing it with John.

Q108 Mr Ruffley: What did you say to del Missier after you sent that e-mail, which was your account of your discussion with Paul Tucker on 29 October? That is all I am asking. What discussions did you have with Mr del Missier about that?
Bob Diamond: I have no separate recollection other than-

Q109 Mr Ruffley: You do not recall?
Bob Diamond: We would have talked about-

Q110 Mr Ruffley: What did you say after you copied him in on that e-mail? As the FSA makes clear, he had a misunderstanding of what was required of him. You accept that, don't you?
Bob Diamond: Yes.

Q111 Mr Ruffley: So what discussion did you have with him about your conversation with Tucker?
Bob Diamond: Discussion about the contents of the note? That I was unaware that Jerry had the impression that the conversation that I had with Paul, either by note or by conversation, was an instruction, and I was not aware that he did instruct.

Q112 Mr Ruffley: Are you, Mr Diamond, to the best of your knowledge and belief, under investigation in your capacity as former chief executive of Barclays Bank plc? Are you under any civil or criminal investigation by either the FSA, the SEC, the CFTC or the United States Department of Justice?
Bob Diamond: Not that I know of.

Q113 Mr Ruffley: Not to the best of your knowledge and belief. Okay. Do you think a criminal prosecution of a banker-that is to say, a criminal prosecution resulting in a custodial sentence-would be a necessary deterrent for bankers who are either reckless and/or commiters of wrongdoing?
Bob Diamond: I think that that is a decision for the regulator.

Q114 Mr Ruffley: I am asking for your personal view. You have been through the mill in the last few days, and I am sure some people have sympathy for you, Mr Diamond. Given that you were talking about the culture on the 'Today' programme lecture-you have had quite a lot to say, haven't you, about the role of banking in our society-do you think the role of banking in our society should include a more punitive regime, such that wrongdoing by people acting recklessly or deliberately to mislead markets should lead to custodial sentences for bankers? It requires a straight yes or no. What do you think?
Bob Diamond: I think that people who do things that they are not supposed to do should be dealt with harshly. I think they should go through due process. We have been through a process ourselves of dealing harshly with people. David, when I got the results of this investigation-it was because of the interviews, as I have said; I did not see a lot of the detail; I was aware there was an investigation and I was broadly aware that things were coming out-and when I read the e-mails from those traders, I got physically ill. It is reprehensible behaviour. If you are asking me should those actions be dealt with-absolutely.
Intermediately, when it became clear during the investigation that there was specific actions, it was dealt with at the time. We did not wait for the end of the investigation. There were times during the investigation when it was less clear, and due process was important. There were times when it was helpful to the investigation for people to be placed on suspension as opposed to terminated. I want to assure you, David, that that behaviour was reprehensible. It was wrong. I am sorry. I am disappointed, and I am also angry. There is absolutely no excuse for the behaviour that was exhibited in those activities and the types of e-mails that were written.
I stand for a lot of people at Barclays who are really, really angry about this. One of my biggest worries is that this is wrong, and I am not happy about it, but we used all the resources that we could to make sure that the people whose behaviour we knew was there were dealt with, with both the regulators in terms of anything that we can do in that regard. This does not represent the Barclays that I know and I love and it does not represent the work of 140,000 people who are working day in and day out for their clients and customers. We have to be very careful, knowing how bad this was, that Barclays also got on top of it. There was no limit to the funds that could be invested for this investigation. We had it report directly to the board, not to the management of the organisation, and we are taking actions on it. It was wrong.

Q115 Mr Ruffley: A final question, Chairman. The Chancellor of the Exchequer, Mr Osborne, has said of your demise, 'I think it is the right decision for the country.' Do you agree?
Bob Diamond: I was not aware of that and I think my decision was the right decision for Barclays-

Q116 Mr Ruffley: And for the country, the Chancellor says. Is that something you agree with, Mr Diamond?
Bob Diamond: David, I love Barclays and I am not going to speculate on anything else. I love Barclays, but I also will tell you, for almost 25 years I have been a part of the financial services industry in the UK. I have developed great relationships with regulators at the Bank of England, at the FSA and the Treasury. I have loved my time here. This is a great place to work.