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Parliament and the bankers

July 5, 2012

This afternoon the House of Commons had an ill tempered start to its debate on setting up an inquiry into standards in the banking industry. For the first two hours of a three and a half hour debate the opposition and government front benches knocked lumps off each other.  From the backbenches several MPs behaved like spluttering gargoyles, screaming abuse with scowls on faces.  In seven years as an MP it was the worst behaviour I’d ever seen.

Once the big cats had left the chamber, taking their rabid friends with them, the remaining Parliamentary mice had a fairly good natured, sensible debate.  We were actually discussing a really serious issue.  How best to inquire into the culture and standards of the banking industry?

On the fact that there needed to be an inquiry, there was no dispute.  The friction was about who should conduct it and over what timescale.  The Coalition Government proposed a Parliamentary Inquiry, with members from the Commons and Lords on a special committee, with recommendations by the end of the year.  Labour wanted another Leveson type inquiry, run by a judge and lawyers and taking a year.

As there was so little time, I didn’t get a chance to speak.  But this is the gist of what I planned to say.

The public are shocked but not entirely surprised by the latest banking scandal.  Since the crash four years ago it seems banks have carried on with business as usual with high pay, excessive bonuses, a reluctance to lend and imposition of unfair business terms on customers.

The impression has been given by bankers that they operate in a separate business world, above and beyond reproach from the rest of society.

One of the most important tasks facing the new Coalition Government in 2010 was to clean up the banking system.  We set up the Independent Commission on Banking, chaired by Sir John Vickers.  The Financial Services Bill is currently before Parliament, giving the Bank of England new regulatory powers and setting up a new Financial Conduct Authority.  A Banking Reform Bill is currently being drafted, ring fencing retail banking from investment banking (home of most of the scandals) and making it easier for new competition.

But we now know that even more needs to be done.  We need a deep cleansing of the culture of the banking industry. We must act fast so that the Financial Services Bill can be amended and the Banking Reform Bill properly drafted.  We can then get the legislation needed for a reformed banking system.

A Parliamentary Committee of Inquiry can be set up within days.  It can make preparations for its work, take expert advice and engage a QC to support the questioning of witnesses.  Hearings can commence this summer.

We should not delay. The public want Parliament to act swiftly, not to kick the issue into the long grass.  MPs are elected to take responsibility for the big national decisions.  We should be the people bringing about change, not sub-contracting it to teams of lawyers.

A full Leveson type inquiry is not necessary or appropriate.  With the banking system the facts are known. We know about the industry structure from the Vickers Inquiry.  We know about malpractices from the FSA investigations that have disgraced Barclays and will shortly reveal information about other banks. We do not need to unearth much in the way of new facts or evidence.

Leveson was necessary due to the competing vested interests of newspaper owners, journalists, former and current government ministers and even the police.  The inquiry needed now is much more narrowly focused on the professional standards to be expected in the banking industry.

We know most of the facts.  We need to decide how to act upon what we know.

The government and opposition actually agree on the need to look at the culture and professional standards of the “banking industry”.  The language is interesting – we all call banking an industry, not a profession.

Barclays’s Quaker founders apparently believed in “honesty, integrity and plain dealing” – which would get a hollow laugh today.  But professions like accounting, law and medicine in the 21st century have standards, ethics and codes of conduct.  Not so for banking, it would seem.

Bankers are actually smart people.  You can’t be stupid and become a banker but it seems remarkably easy for bankers to behave stupidly.

Imagine a chartered accountant or a chartered tax adviser (like me!) refusing to sign off an audit report or tax return unless a client agreed to buy expensive and unnecessary management consultancy from the same firm.  It’s not possible.  Yet banks impose onerous terms and conditions on people just for ordinary business.  Companies and small businesses wanting a loan are cajoled into buying swaps and derivatives.

It appears that bankers often put themselves before their customers.  The bank’s profit before the client’s interest.  A bonus before integrity.

This is the culture that must change.

Now that the Parliamentary Inquiry has been set up I want all parties to work together to clean up the banking industry.

We can turn a lucrative industry into a rewarding profession.

Above all we must try to restore public faith that the banks, those who lead them and work in them, are acting in the wider interests of the economy and society.

13 Comments leave one →
  1. John S permalink
    July 6, 2012 12:28 am

    Who’s going to finance the government debt if too many restrictions are placed on the British banks? The sovereign funds of the Arab nations, China and Russia? If too many restrictions are placed on Britsh banks, will their credit ratings be downgraded and subsequently that of the the UK? There’s a hell of a lot of government debt to finance! If you’re looking to be re-elected, a one-off bill to hang Bob “Scapegoat” Diamond would go down better with the electorate.

    P.S. No plugs for your favourite Dutch bank?

    • July 7, 2012 4:24 pm

      i think in the long run a cleansing of the culture of bankers will do more for us than revenge on individuals! I’ve had some negative comments about Triodos, which puzzle me. But I guess people can find fault with any corporation.

  2. buryzee permalink
    July 6, 2012 9:26 am

    It is fine that some elected and some non-elected (lords) people do a parliamentary inquiry and find a way to get the dirt off our banking system. But what about the criminality of some banksters? Would it be better to have a criminal investigation parallel to the parliamentary one.? I understand US are bringing criminal cases against the Barclays.

    I am mystified at the way the heads of Barclays answered the questions, as to when they knew about this Libor fraud. Even I heard about it listening to Russian TV, some years ago. Some say almost all the top banksters knew about it.

  3. July 6, 2012 8:20 pm

    I think it is a cheap political point to say “we” want a quick parliamentary inquiry while labour want a lengthy Leveson type of inquiry.” And another one: “MPs are elected to take responsibility for the big national decisions. We should be the people bringing about change, not sub-contracting it to teams of lawyers.”

    Let’s define terms: you parliamentarians have the AUTHORITY to take big national decisions. Taking RESPONSIBILITY means the buck stops with you when something goes wrong. Everybody agrees that something very big went wrong, but I don’t see parliamentarians commenting on their failure to regulate the banking casinos; to minimise credit at national, institutional and personal level; to investigate the facts (no, we don’t know all the facts yet) and for people who have acted badly to bring a heavy hammer down on their heads and pocketbooks IN PROPORTION TO THE DAMAGE THEY HAVE CAUSED. Let’s get serious, Stephen. If a group of east-end lads smash some windows and steal TV sets and trainers, you “responsible” folks bay for their blood. Instant court appearances, heavy sentences out of proportion to the social damage caused, and acres of comments about how there is no excuse whatsoever for that kind of bad behaviour. But if another group of City lads steal millions (or is it billions — I’m losing count, and it seems zeros don’t count for much except free tickets to continue) and what do you do by way of taking responsibility? Well, it has been FOUR YEARS since we knew quite a few of the facts, right? And meanwhile they (how many in that gang/group?) take their million-pound salaries and 3-million-pound bonuses and options; and … well, you are hoping now to ask a few of them questions, politely. Is that really what you call responsibility? I think many of your constiutents would call that NOT taking responibility.

    Who cares whether you call it an industry or a profession? What would you call prostitution — an industry or a profession? Frankly I think the bankers have acted in a very professional manner — they’ve done a really good, skilled job in a highly complex and exacting field, and they have come up with the results that were expected of them, and that they were encouraged to deliver — very big SHORT-TERM PROFITS. Isn’t it you parliamentarians who encouraged them to expand credit? Aren’t you the guys who de-regulated the banks, who allowed and encouraged the casino mentality? Aren’t you the guys who consistently encourage big business at the expense of small business?

    Who were you thinking of when you wrote that last sentence, “Above all we must try to restore public faith that the banks, those who lead them and work in them, are acting in the wider interests of the economy and society.” What constituency is going to read that and feel good? The bankers? People with low intelligence or who have been living on some other planet? Come on, Stephen. Everybody I know thinks parliamentarians are a joke when it comes to reining in the casinos, and many people think you probably have your ethical fingers a bit too close to the roulette wheel.

    Why don’t you actually DO SOMETHING CONSEQUENTIAL regarding the banking system? Call it “institutional greed” and set some moral standards that are somewhat close to what ordinary people would call “ethical”.

    • July 7, 2012 4:30 pm

      well that may be your opinion. But we have a parliamentary democracy so MPs (and for the time being unelected Peers) have a responsibility to lead change, whether it’s in banking or any other issue. Yes, some parliamentarians have failed in their duty in the past. That doesn’t mean that all current MPs have to give up.

  4. nigel drew permalink
    July 7, 2012 3:29 pm

    It is not acceptable for MP’s to be investigating the banks. Its parliament that has failed us all in not taking control of the banks whilst accepting their lobbying and party contributions. The tories in particular are part of the culture that needs reform. Judicial Investigation is the only way forward. There is nothing to stop parliamentarians, the serious fraud squad and a judge from investigating in parallel….this is more or less what has happened with Leveson. Lib Dems have copped out again and have underestimated the people’s anger at the ineffectiveness of parliament to control the banks and other corporations.

    • July 7, 2012 4:33 pm

      copped out of what? You mean not done what Ed Balls wanted? The Serious Fraud Office will go after individuals. The broad facts of systemic failure are known. So what is needed is a committee of Parliamentarians to recommend to colleagues what needs to be done to the two reform Bills that we will pass over the next 9 months.

  5. nigel drew permalink
    July 8, 2012 6:01 am

    “Copped out” because Lib Dems are following the government (tory) whip and not taking an independent line about banking and many other issues.
    LibDems are seriously tied into the tory madness and will suffer at the next election. In fact your party is looking at annihilation if you can’t distance yourselves from the senior partner in the coalition. I want to see a genuine left of centre focus in british politics . The demise of the LibDems will mean domination by a tory market-oriented corporate-supporting plutocracy.

    • July 8, 2012 9:09 am

      trouble is a lot of comments about Lib Dems in coalition come from one of these perspectives:
      1 People who just can’t get their heads round two parties being in government, despite it being normal in most other European countries
      2 People who think the role of the Lib Dems is to prop up Labour
      3 People who would really rather British politics was a Labservative duopoly.

      The pressure for banking reform over many years has come from the Lib Dems. The contrast between Vince Cable and Ed Balls on this morning’s Andrew Marr show demonstrated that once again.

      We also have a different emphasis on tax (tax cuts for low paid come from us), schools (the pupil premium), immigration (stopping the Tories from irrational slamming of the door) and constitutional reform – which we will see a lot of on Monday and Tues this week as we debate Lords reform. I guess you will see what you want to see…

      • nigel drew permalink
        July 8, 2012 10:32 am

        What the population see is a tory led coalition hammering the poor and vulnerable whilst supporting the interests of the rich, whether its cuts or banking. I am not a labour supporter, they are just as bad. I am a supporter of people and communities currently being failed by a corrupt polity. As long as libdems keep the tories in power without standing up for people and communities your hold on power is tenuous and temporary.

  6. Paul Bemmy Down permalink
    July 8, 2012 2:10 pm

    I was a bookmaker for many years, and no-way would people involved in that industry behaved like the bankers. It’s said they gambled, but to gamble there has to be a risk of losing, and they were in a win only situation. They did not understand what they were doing, only that they were making fortunes and that if things went wrong, they could just walk away. The last Gov. and it’s FSA, were clueless as to what was taking place, but whilst the taxes were flowing in, they were quite happy to sit on their hands. In future, those involved in more risky ventures, should have a personal price to pay for failure. It’s always easy to be “brave” when gambling with other peoples money, but your own living on the line is far more of a thought provoker than any regulation!

    • rosemary permalink
      August 2, 2012 4:42 pm

      Yes, Paul, we need to rediscover the meaning of the phrase “moral hazard.” Northern Rock should have been left alone to face the music, and so should all of them. They would soon have pulled themselves together.

      Clinton’s diastrous policy of forcing bankers to lend to people who couldn’t repay has much to answer for too. He also behaved as if he could only win, and he and his equally vain mate Blair unfortunately did.

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