Ministers order an urgent review of the Libor bank rate after it emerged Barclays had tried to manipulate it. But Labour’s Ed Miliband calls for a full-scale independent inquiry into banking culture.
The independent Libor review would be established next week and report by the end of the summer.
But the Labour leader says the industry needs a strict new code of conduct and jail sentences for bankers who abuse the system.
His comments today echo those of Bank of England Governor Sir Mervyn King, who earlier this week demanded a “real change in culture”.
It follows two banking scandals in the space of a week, including rate-rigging at Barclays, for which the bank has been fined £290m.
It also emerged the FSA found “serious failings” in the sale of complex financial products to small businesses.
Business Secretary Vince Cable told Channel 4 News the public wanted the government to do something about the “rampant greed” in the banking system – but he suggested having an extended and expensive inquiry would not meet that need.
If there are questions that the Treasury select committee can’t get to the bottom of, we may need to pursue further inquiries. Vince Cable
He reminded Krishnan Guru-Murthy that he had been asking for more than a decade for tougher regulation of the banking system. “I’m now in government. I want to see it happening. I’m making it happen.”
But Mr Cable appeared to leave the door open to a wider inquiry into the culture of banking when he said: “If there are questions that the Treasury select committee can’t get to the bottom of, we may need to pursue further inquiries. Nobody’s shutting the door on that option.”
Earlier, Chris Leslie MP, the shadow Treasury minister, told Krishnan Guru-Murthy that an investigation into Libor regulation was not enough.
“We now need to look into professional standards, we need to look at all of those unregulated activities – which included Libor, but there’s lots of others, sadly. And I think it’s this wider cultural question, and it can only be done if it’s truly independent.”
In an interview with Saturday’s Times, Mr Miliband said: “There hasn’t been a proper reckoning for what happened in the banking crisis.
“The bankers told us – it’s all fine, we’ve cleaned everything up. But I’m afraid that doesn’t hold water any more.
“We’ve got to have an open, independent inquiry with hearings to find out what is going on in the dark corners of the banks. Some of it clearly was illegal, but it goes well beyond that. There is a problem with how people operate. This isn’t just about regulation, it’s also about culture and ethics.”
Calling for the worst offenders to receive prison sentences, he added: “It should be about probity, honesty, integrity. Bankers should be struck off if they do the wrong thing…this is not a victimless crime.”
The Financial Services Authority (FSA) revealed on Friday that Barclays, HSBC, Royal Bank of Scotland and Lloyds Banking Group had agreed to pay compensation to customers who were mis-sold interest-rate hedging products.
Some 28,000 of the products have been sold since 2001 and may have been offered as protection – or to act as a hedge – against a rise in interest rates without the customer fully grasping the downside risks.
Mr Miliband described the Barclays fiasco as “the unacceptable face of capitalism,” and called on Mr Diamond to step down.