guardian.co.uk,
Larry Elliott, Jill Treanor and Nicholas Watt in Brussels, Friday 29 June 2012
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| Mervyn King, the governor of the Bank of England, says something has gone 'very wrong' with Britain’s banks that needs to be put right. Photograph: David Jones/PA |
Sir MervynKing, the governor of the Bank of England, has piled the pressure on the
scandal-ridden City by saying something has gone "very wrong" with
Britain's banks that needed to be put right.
As Barclays
and other high street banks became embroiled in a new mis-selling scandal, King
launched his most scathing attack yet on the culture of banking in the five-year-long
financial crisis.
King
refused to say Bob Diamond was a "fit and proper" person to run
Barclays as the reputational damage from an interest rate-fixing fine led to
another fall in the bank's shares. More than £4bn has been wiped off the value
of the bank since the rate-fixing scandal emerged.
"It is
time to do something about the banking system," King said. As he warned
that the outlook for financial stability had deteriorated as a result of the
deepening crisis in the eurozone, he dismissed mounting calls for a
Leveson-style investigation into banks, saying that enough was already known to
implement root and branch reform of the City.
But Ed
Balls, the shadow chancellor, said an inquiry was needed. He said: "The
governor is right to say that there is a real cultural problem in our banks
which these latest scandals expose, and I don't think it is right for
government ministers – or for the governor, actually – to say we have had
enough inquiries."
King said:
"Many people in the banking industry are hardworking and feel badly let
down by some of their colleagues and leaders. It goes to the culture and the
structure of banks: the excessive compensation, the shoddy treatment of
customers, the deceitful manipulation of a key interest rate, and today news of
yet another mis-selling scandal."
Barclays,
HSBC, Lloyds Banking Group and Royal Bank of Scotland were ordered by the
Financial Services Authority (FSA) to pay redress to small business customers
after it found "serious failings" in the way they were sold complex
financial products intended to protect them from interest rate rises. The
revelations caused outrage among business groups, with the Institute of
Directors, the British Chambers of Commerce and the CBI all condemning the
fleecing of their business members. John Longworth, director general of the
BCC, said the latest scandal would "damage business's perception of banks
further".
After 72
hours of sustained attack on Diamond, the Barclays boss made it clear he would
not voluntarily step down. The bank's chairman, Marcus Agius, is also in the
line of fire and may be forced out in an attempt to show that a boardroom
executive is paying the price for the record-breaking £290m fine and damage to
the bank's reputation. Barclays shareholders are thought to be considering
appointing a figurehead to conduct a review of the culture inside the bank.
The
political pressure continued to mount on Diamond. Asked whether he was the
right man to lead Barclays, the prime minister said: "I can't say that. He
has questions to answer."
David
Cameron's remarks mirrored those of King and Lord Turner, chairman of the FSA,
who both twice declined the opportunity to say that Diamond was "fit and
proper" to run Barclays.
Barclays
was on Wednesday fined a record £290m for attempting to manipulate crucial interest rates known as the London interbank offered rate (Libor) and the Euro
interbank offered rate (Euribor), both of which are crucial in setting the
price at which customers borrow for mortgages, between 2005 and 2009.
The fine
was published alongside a series of emails showing how traders helped each
other to try to manipulate interest rates with promises of champagne and quips
like "this is for you, big boy".
Sir Roger
Carr, president of employers' body the CBI, said: "The manipulation of the
Libor arrangements is deplorable and undermines international trust in the
integrity of the City. The weakness must be addressed and the culprits
punished."
King said
the question of who ran the UK's banks was a question for another day,
insisting that the immediate priority was for the government to implement in
full the recommendations of the Independent Commission on Banking, headed by
Sir John Vickers, which called for firewalls to be set up between the
investment and retail arms of banks. He said the cultures of investment and
retail banking were different and needed to be separated.
Turner said
that there was a "culture of cynicism and greed that is quite
shocking". Andrew Bailey, the top banking regulator at the FSA, said the
onus was on bank boards to take action. "If, as we now see, there is a
fundamental breakdown in trust, the bank boards have to recognise that trust
has to be got back and they have to think very hard about how they do
that," he said.
The prime
minister agreed with King's calls for a cultural change in banking. "We
know what's gone wrong and largely we know what needs to be done to put it
right. What you are going to see from the government is an incredibly
methodical series of actions to deal with all of these problems," he said
as he rejected the call by Balls for a Leveson-style inquiry.
"People
are shocked by the swaggering arrogance of what we have discovered in the last
24 hours. We really need to open this wide open," said Balls. Knowing he
was opening himself up to a political backlash as he was City minister for part
of the Labour government's time in office, Balls admitted mistakes had been
made.
Lord
Oakeshott, the Liberal Democrat peer, said Balls and the former prime minister
Gordon Brown would need to be the first two witnesses called to give evidence.
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