We need a proper independent inquiry into the culture of banking – my BBC News interview

Martine Croxall: What’s your view on having a Leveson-style public inquiry into the banking sector? The TUC are keen, the Lib Dems are too and apparently 4,000 people have signed a Downing Street e-petition for it.

Ed Balls: I think that the [Bank of England] 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. The Vickers inquiry was an important inquiry. We have also had work by the FSA into two particular aspects. But why is there a culture where people in quite senior positions seem to think that they can get away with rigging markets and acting in a duplicitous way? I do think, as you said, these calls we are seeing today for a proper, independent, arm’s length inquiry which looks at the future and can get things on to a more open, honest footing but also looks at the self-regulation of the 1980s and ‘90s and the way in which the FSA regulated in the last decade. I think there is now a case. If not, we can’t just brush this under the carpet. 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.

MC: We have had a text message from one person saying that it was Gordon Brown and Alistair Darling who presided over much of this during the 1990s. You set up the FSA. We have heard from them this morning. They are saying that it is just their job really to set standards. Don’t we need to expect more of them though to actually go about doing the checking?

EB: We had here market rigging in a particular bank and there will be other banks, people acting in a duplicitous way and it is going to lead, we expect, to criminal investigations. The senior managers at Barclays didn’t know about that. It seems neither did the FSA or the Bank because the reason is these people were doing something that was underhand and illegal. What we did in government is that we moved from the old self-regulation of the past in many areas to proper legal-regulation. The FSA were the legal regulators. I have said on your programme many times, we weren’t tough enough. But actually all the time, when we were doing this job of regulating, we were attacked continually by the City, by banks, by Conservative shadow ministers for being too tough and too heavy handed. I think we need to open this up and ask what went on, how did you have this culture of lying in our banks? How could the regulators have been lied to in this way? Clearly we thought legal statutory regulation was the right thing to do to get beyond the old boys’ regulation of the past. It clearly, in retrospect, wasn’t tough enough particularly in this Libor market where it was done in the old way and there was gross dishonesty.

MC: But if this is about trust and how much trust we have in the banks, Alex in Scotland has texted us to say we are asking politicians to tell the police to investigate bankers reported on by the media, all of whom have been under the spotlight.

EB: I’m afraid that if we were to do a public poll and ask people about politicians or banker or I’m afraid journalists none of us come very high in that polling. But the reality is that we have got a responsibility to find out what happened and put it right for the future. That’s what we’re elected to do, that’s what we are employed to do, to ask the difficult questions. The fact is that even within a proper tougher legal statutory code people were getting away with lies and manipulation for their own personal gain and boasting about the champagne they were going to drink as a result. This generation of politicians has got a responsibility to put this right and to say to the banks it’s got to change. It’s a cultural thing. It isn’t simply about the rules or the regulations. It’s why people thought they could get away with something which actually is immoral.

MC: Let me ask you one question about this deal that we have seen in the eurozone. The planned bailout fund to directly support banks rather than government. How effective do you think this deal will be given the fact that in the process Germany has been isolated which might not be the wisest position to put them in?

EB: First of all on the eurozone, it’s a step forward. But I think you see the market reaction, this is not a big step forward. I think people will probably conclude after this summer that yet again the governments have muddled through and we haven’t had a sort of decisive step forward. We have not seen the change which we actually wanted to see. The European Central Bank has not been empowered. The ESM facility is not strong enough. I’m afraid we are going to get back to the wrangling and we still have what we call the Cameron-Merkel view which is bigger spending cuts will get growth when that is clearly not working. So we do need to see some change there. Can I say one other thing, Martine, about what we have been seeing with the banks as well, because I was hoping to talk to you to say one other thing which is on the issue of Barclays and the discussions that have been happening in the last 24 hours: it’s good that the chief executive of Barclays, Mr Bob Diamond, is going to go to the select committee next week and we welcome that and it’s important that he answers the questions. I have to say when you see the mis-selling today on small business lending after these awful revelations, the fact that there has been no apologies from Barclays I think is quite shocking.

MC: Should he go?

EB: I think it is getting to the point where people are saying that this cultural change has got to be led by people who will put their hands up and say things went wrong and to explain in detail why that happened and then be able to lead us on into the next stage. I have to say 24 hours on, as the detail of these revelations comes out and the sort of reluctant way in which Barclays’ current leadership is facing up to this. I am not sure whether it is possible for the current leadership to take the bank forward and really sort out these problems. It’s a matter for the shareholders and it’s good that Mr Diamond is going to the select committee. But the passage of time is making many people doubt that really they are facing up to the gravity of what has happened and whether they can really rebuild the confidence that we need to see.

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Posted June 29th, 2012 by Ed