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.