Barclays and Libor’s (lack of) integrity committee

July 25, 2012, 10:30 PM UTC

FORTUNE — A husband and wife team who have launched a website critical of Wall Street practices have uncovered an ironic, and troubling, tidbit about Libor and Barclays.

Just three months before Barclays admitted that numerous employees at the bank including top executives participated in manipulating Libor, and long after it was widely known to be under investigation, the British Bankers’ Association, which oversees the key lending rate, named Barclays to a steering committee in charge of deciding if there was a problem with the rate.

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In announcing the committee, the BBA said that the “Authorities” were “engaged” with the initiative. So someone should have tipped off the BBA to the fact that Barclays was probably not the best bank to put on the Libor’s integrity steering committee. It once again raises the question of how much bankers are really determined to correct the problem with Libor.

A BBA spokesperson said the review of Libor was ongoing. And so far, she said, Barclays has not been removed from the steering committee leading the review. She said there is no date as to when the steering committee would make its suggestions, but that date has been pushed back due to “recent events.”

The BBA, of course, didn’t need regulators to tell them that there was a problem with Libor and that Barclays was part of it. The famous discussion of whether Barclays was either clean-clean or clean-dirty was between Barclays and a BBA official.

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In late 2008, the BBA trumpeted that it had enacted enhanced governance and “scrutiny” procedures to insure Libor was not being manipulated. Yet, Baltimore’s class-action suit against Barclays and others claims that Libor manipulation continued well into 2010. With all the actual scrutiny of Libor these days, you would assume that the banks are finally playing it straight with the rate, and that Libor, which is still regularly used to set interest on all kinds of consumer and business loans, should be believed. And even there you could be wrong. A recent article from the New York Times looked at the Libor submissions banks made as recently as June, and found reason to question them.

So if you were trying to make Libor believable, naming Barclays to a group that would strengthen its integrity probably won’t help. But Barclays isn’t really the problem. There’s a bigger problem with Libor. Earlier this week, my colleague Nin-Hai Tseng wrote a story detailing four ways to fix Libor (in the good way).

The real reason Libor will never work, though, in its present form, and why Wall Street always runs into problems, has to do with the failure of self-regulation. It works until it doesn’t, and then once it doesn’t there is no way to fix it. Remember that Bernie Madoff, Bernie Madoff, once headed up a panel that was supposed to self-regulate Nasdaq trading firms. I’m sure he completed that role with integrity.

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Barclays is the only bank to have admitted it participated in manipulation. But nearly every bank involved in the Libor process is under investigation. So as long as you were going include the banks, which is the definition of self-regulation, there was no way the BBA’s reforms were ever going to be viewed as credible. The only way to do that is to impose some level of outside monitoring, which is exactly what Barclays has agreed to and others are likely to as well.

And that seems to be one of the key take-aways of the Libor scandal so far. Self-regulating markets are almost always forced to morph into actual regulated ones. So why not go that way from the start.