The Libor scandal will claim many victims before it runs its course. Bob Diamond's head has already rolled at Barclays. Other financial institutions must have been involved and as more names start to emerge there will be a lot more shame-faced resignations. Perhaps the greatest victim, however, will be the Bank of England and its increasingly hapless governor, Sir Mervyn King.
The charge sheet against King grows with each month that passes. The Bank did nothing to stop the credit bubble that built up during the middle of the last decade. There may been a few warnings about debt running out of control, but at no point did the Bank try and control it by raising interest rates, for example. After the financial crisis broke, it showed little appreciation of the scale of the crisis and moved slowly to start rescuing the banking sector. If it had moved earlier, perhaps fewer banks would have had to be bailed out by the taxpayer.
As the recession bit, it embarked on a policy of record low interest rates and quantitative easing that so far shows little sign of working. And it let inflation rip out of control when its mandate is to deliver price stability. Inflation is easy to start, but very hard to stop and one day there may well be a heavy price to pay for King's laid-back attitude to rising prices.
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Now it seems that the City has been engaged in systematic price rigging. It started with Libor but may well extend to other markets, such as oil. Trust in the City is at an all-time low and may take a generation to recover. Whether the Bank knew what was going on or not we may never know. But if it didn't, surely it should have been looking a bit harder and asking some tougher questions?
King's tenure is due to end next summer and after the hash he has made of the job it is unlikely that anyone will be sorry to see him go. The key questions are who will replace him and what kind of agenda will they bring to the job? Paul Tucker, the deputy governor, was the favourite among the bank staff to take over from King. A tradition has grown up that the Bank makes an internal appointment. King worked at the Bank for many years before leading it and so did his predecessor, Eddie George. But while some previous governors were staffers such as Sir Leslie O'Brien, who presided over Harold Wilson's devaluation of the pound in the 1960s in the past the Bank usually appointed an experienced private-sector banker.
This time around, there can surely be no question of an internal appointment. Not all the blame for the string of policy blunders can be pinned on Sir Mervyn alone. Failure on this scale is institutional. The Bank needs root and branch reform and that can only come from outside.
But who can take this on? There is some support for Lord Turner, the chairman of the Financial Services Authority (FSA). But he surely must be ruled out as well. The FSA is even more hapless than the Bank: it did nothing to stop Royal Bank of Scotland running out of control and didn't do anything about Libor either.
Mark Carney, the governor of the Bank of Canada, has received some support. He is an intelligent and forceful central banker and the resilience of the Canadian financial system (where not a single bank ran into serious trouble during the credit crunch) suggests it is a well-regulated nation. But this is hardly the moment to draft in a foreigner. There will be tough decisions to be made in the years ahead and those are better argued for by a British governor.
A commercial banker is even less acceptable. Right now, you can't say for certain that any bank will come out of the scandal unscathed. In truth, that rules out any of the insiders from the financial system. It is the club that is rotten and it can only be reformed from the outside.
The best choice would be a respected and experienced industrialist. Someone who knows about money and business but who also comes from outside the City and can take a long hard look at what the Bank is getting wrong and how to put it right. Although the Bank usually appoints financial figures, it is not unheard of to choose an outsider. Baron Catto, who ran the Bank from 1944 to 1949 and took it into state ownership, was a self-made man who left school in Newcastle at the age of 15 and made his fortune in shipping.
Who could they choose? There is no shortage of candidates. Simon Wolfson of Next is both an excellent businessmen and, as his prize for the best work on leaving the euro has shown, not afraid to think about big issues. Sir Stuart Rose, formerly of Marks & Spencer, would be a popular choice. Sir John Browne, formerly of BP, knows how to push through change, and so does Justin King at Sainsbury's. Dame Marjorie Scardino of Pearson has run a complex company for years.
The best choice, though, would be Sir Terry Leahy, the former boss of Tesco. From a modest background, he worked his way through the ranks and turned Tesco into one of the world's leading retailers. If he could work just a fraction of the same magic at the Bank, he would be an inspired appointment and far better than any tarnished banker.
