Absolutely extraordinary news from the top of the Barclays tower this morning. Bob Diamond’s resignation is a watershed in Britain’s relationship with its banks. It would have been utterly unthinkable to think that a leading non-bankrupt banker would have been forced out by essentially political pressure.

It’s doubly unthinkable that a tough street fighter such as Mr Diamond would throw in the towel. It is extremely out of character, and his statement was pretty clear that he feels he has been hounded out by politicians.

Who was behind the resignation?

It might well be that the intervention of Sir Mervyn King, has ultimately done for him. It was a complete coincidence that the Bank of England hosted a press conference on Friday morning. But the governor’s words illustrated just how fraught the relationship had become between Barclays and its central banker.

The Barclays board did confirm Diamond in place on Friday, but Sir Mervyn’s very public intervention clearly gave cover for the Labour party, primarily, to pursue Mr Diamond’s position. Then it appeared that the Barclays chief faced a difficult explanation of a 2008 Libor phone call with Deputy Governor Paul Tucker tomorrow.  The long-missed power of the governor’s eyebrow, appears to be back.

Even as Mr Diamond denies he is resigning for having done anything wrong, my feeling is that certain aspects of the Barclays account of the Libor scandal seemed extraordinary. It would have taken quite an heroic explanation in front of MPs.

Two scandals for the price of one

Remember, this is two scandals in one. The first occurred in Bob Diamond’s Barclay’s Capital. Traders enriched themselves, though apparently not Barclays’ top-line profits. Diamond did not know, which is a failure of sorts.

The second scandal is more excusable in a way, but directly involves Mr Diamond. There were industry-wide attempts to lower Libor submissions as a strategy to calm fears about financial stability. Other banks were at it. The question: was it tacitly sanctioned by authorities? That is a conversation that could pit Barclays’ explanation directly against the Bank of England, its lender of last resort, in the public forum of the Treasury select committee.

03 barclays g 602x200 Diamond not forever as UK banking changes for good

He has been a brilliant risk taker. At a time in 2008 when, frankly, many financiers and journalists such as myself were deeply worried about Barclays’ financial fragility, Mr Diamond held court after a results announcement and said that the crisis was a unique opportunity to win market share. He was talking about and planning a takeover of Lehman Brothers.

At the very peak of the crisis in September 2008, he was there at the Fed in NY, hustling and trying to get the best deal on Lehman’s. Sceptics were proved wrong. Buying the bulk of Lehman’s out of bankruptcy was the steal of the century, catapulting Barclays in to the Wall Street top tier at vast profit, with minimal risk. Lehman’s midtown Manhattan HQ was immediately drenched in Barclays’ laser blue. Diamond had returned to NY as a conquering hero.

He was also the driving force behind Barclays attempt to buy ABN Amro in 2007. Many would argue that he luckily dodged a bullet instead taken by Fred Goodwin at RBS, who outbid Barclays. Diamond says that the deal was “fully hedged” as it was in shares. RBS paid in cash. He was also behind the expansion success and lucrative sell off of the exchange-traded fund business iShares.

Misjudgement

During that era Diamond, as Barclays president, was balanced off by John Varley, the patrician chief executive. The Lennon and McCartney of banking. The argument would be that his risk-taking trader instincts needed a foil.

Over the past year, Barclays has been settling a series of problematic legal entanglements, from aggressive tax schemes to this Libor scandal. This was a form of trying to trade away large chunks of reputational and legal risk.

It obviously hasn’t worked as intended. There has been a misjudgement of the public mood and policy backdrop.

“I don’t think the Bob Diamonds of this world would have resigned four or five years ago,” said the chancellor on this morning’s Today programme.

We have entered a new world. Politicians now appear sovereign over our banking system. Many in Britain will welcome that. For many, it will be a profound shock. And this is just the beginning.

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