This committee, set up following the LIBOR scandal, is proving to be the closest thing yet to the sort of Truth Commission which this website suggested back in 2010.
The Parliamentary committee, chaired by Andrew Tyrie, has begun to focus on the culture of the banking and financial industries, and on the values and behaviours of those who ply these trades. This marks a change from previous UK inquiries and commissions, which have examined more technical issues of banking structures and systems.
It has taken five years, and a further set of major scandals over rigging of LIBOR, sale of products such as PPI and derivatives, and continuing doubts about the validity of banking balance sheets, for Parliamentarians to accept that any reforms will need to be locked very firmly in place. The likelihood of the banks proving able to regulate themselves is now widely dismissed. Their is now recognition in Parliament, as well as all other sections of society, that greed, short-termism, and (all too often) criminal behaviour have become endemic within UK banks.
The committee’s December 2012 report recommends not just a strengthening of the separation proposed by Vickers, but the construction of an ‘electrified’ ring fence. This would ensure that regulators could take action against individual banks which made systematic efforts to undermine or subvert a split between retail and investment banking.
It is now acknowledged that banking lobby in this country is immensely powerful and will do all it can to water down reforms. Yet the mood has shifted in the past year. Politicians increasingly share the public view that bankers simply cannot be trusted to behave themselves. Evidence of LIBOR manipulation by Barclays, RBS and UBS show that it has not just been the odd ‘rogue trader’ causing problems, but standard behaviour to reward oneself without thought to the wider consequences.
The Parliamentary committee will be moving on in the New Year to explore a further set of questions and issues, as below:
The case for prohibiting groups containing a ring-fenced bank from engaging inproprietary trading, and in particular the contribution that this could make to the changes needed to banking culture and standards;
How the structural changes will affect standards and culture in the long run;
How to assess bank suggestions that setting the necessary standards for banking in UK might lead to a flight abroad;
Whether the sale of derivatives inside the ring-fence has a bearing on measures to prevent future mis-selling of such products; and
The wider issues of competition and transparency raised by the ICB.
The question of ‘the flight abroad’, and whether this is a real risk to the UK, is one posed by this website two years ago. It is a question that, hitherto, has been met by the banks with condescension at such naivety. Of course the UK economy would suffer irreparable harm, we are assured, were any Government to dare to impose really radical change in regulation and banking culture. We must all be grown up and live in the real world.
It also is a question which has not had a remotely satisfactory answer, to date. No solid evidence is ever put forward to support the assertion that the UK economy, and the lives of UK residents, have seen a net benefit as a result of London becoming a global financial hub. Let us hope the Parliamentary Committee on Banking Standards find some answers to this question, over the coming months.