Britain dives into a banking stoush

A vicious trans-Atlantic banking stoush has erupted, with American regulators accusing British banks of willfully bending the rules to make a buck, while the British have counter-attacked, claiming that US regulators are deliberately targeting British banks in an attempt to soil London's reputation as one of the world's major financial centres.

The latest round flared earlier this week when New York's bank regulator accused Standard Chartered of hiding $250 billion of transactions with the Iranian government, leaving "the US financial system vulnerable to terrorists, weapons dealers, drug kingpins and corrupt regimes”. For its part, Standard Chartered has strongly disputed the allegations, saying that any transgressions were "small clerical errors”.

But the allegations swirling around Standard Chartered are the latest in a string of British banking scandals. In late June, Barclays agreed to pay £290 million fine ($US450 million) to settle an inquiry by US and UK authorities that revealed that the bank's traders blatantly manipulated Libor – a key interest rate. And last week, the giant British bank, HSBC, revealed that it had set aside $700 million to cover the cost of US fines for laundering the money of Mexican drug cartels. And US banking giant JP Morgan Chase was forced to confess that one of the traders in its UK operations – known as the ‘London Whale' – managed to rack up losses of $US5.8 billion.

Some US commentators have been quick to accuse British regulators of being excessively complacent when it comes to supervising their financiers. They argue that the 'light touch' approach of British regulators – which has helped make the City, as London's financial hub is known, one of the major global centres of the world – is nothing more than laxity.

But British politicians and bankers have hit back hard, claiming that US regulators have now adopted an anti-UK bias, and accusing Wall Street of trying to besmirch the City's reputation.

Overnight, Bank of England boss Mervyn King launched an attack on the New York banking watchdog, which broke ranks with other US regulators by revealing the allegations against Standard Chartered.

"All the UK authorities would ask is that the various regulatory bodies that are investigating a particular case try to work together and refrain from making too many public statements until the investigation is completed. That seems to me the appropriate time to make clear what the judgment is and what the punishment is," he said.

However, unlike some senior British politicians, King did not believe that US authorities had ulterior motives. "If there have been cases where they [the banks] have behaved badly and against the regulatory framework, regulators have taken action," he said. "I think it's perfectly reasonable."