Why we need root and branch reform of our banks to restore public trust – my Tribune column

A few weeks after I became shadow chancellor, at a meeting in the City, one figure said to me: “why do you politicians always go an about banks? Housewives up and down country are not talking about banks but about jobs and the NHS.”

I told him he was wrong then. And he is certainly wrong now. Women and men up and down the country are, of course, worried about jobs and what is happening to the health service. But they are also appalled by the series of revelations over what some people in some of our banks have been up to.

The Libor scandal is just the latest example. The lying and manipulation of interest rates now exposed at Barclays comes on top of banks being found guilty of mis-selling to small firms and the gross banking irresponsibility which caused the global financial crisis.

Public anger is shared by the hundreds of thousands of bank employees on ordinary salaries – not just in London, but in places like Leeds, Edinburgh and Manchester too – who have seen the reputation of their profession undermined by the irresponsibility of a powerful few

That is why Ed Miliband and I are demanding a proper, open, independent, forensic and judge-led inquiry. It should not only investigate the Libor market scandal but go much wider to cover the whole culture and practice of banking in our country. And it must be organised independently of the financial services industry, regulators, the government and MPs.

It is the only way we can rebuild public trust — not politicians investigating bankers, as the government insisted upon. And while the Conservatives and Lib Dems may have voted down our demands for an independent inquiry we will continue to make the case for one.

Of course, an independent inquiry will not only mean tough questions for the banks, the regulators and the Bank of England but for ministers past and present too. And rightly so. Difficult issues cannot be swept under the carpet, however uncomfortable they might be.

While the last Labour government toughened up financial regulation, it is clear we weren’t tough enough. Like governments and regulators around the world, we got that wrong. But David Cameron and George Osborne, who have been desperate to avoid a judicial inquiry, need to explain why they consistently argued before the crash that regulation was too tough, not too lax.

And while the government continues to resist calls for a proper independent inquiry, Labour is this week making the case for root and branch reform of our banks.

First, we need to improve competition in the banking sector so that banks are more responsive to their customers.

We need to ensure that smaller banks and building societies can better compete with the existing big five, for instance by going beyond the sale of 630 Lloyds branches to the Co-operative Bank and having two new challenger banks. The government must also take further action to make it easier for customers to switch bank accounts and seriously consider proposals to have fully transferable account numbers like with mobile phones.

Second, as part of the wider culture change we need, there should be a code of conduct and professional standards for bankers, with those breaking the rules being struck off, as is the case in professions like teaching, law and medicine. And the Serious Fraud Office must have the resources it needs to tackle fraud in financial services, which could be paid for using the record fine levied on Barclays.

Third, we need our banks to support the wider economy. That is why Labour’s policy review is examining the case for a British Investment Bank to help small businesses. And we must ensure that the recommendations of the Vickers report, including ring-fencing retail and investment banks, are implemented in full and not watered down, as the government is doing.

By resisting our calls for an independent and wide-ranging inquiry into banking, it is clear that this Tory-led government cannot provide the change we need.

George Osborne has spent the last week making false allegations about Labour, which at the time of writing he has refused to withdraw. But with the economy in a double-dip recession and our banks in need of serious reform, what the country needs is a Chancellor who works full-time in the national economic interest.

Because it is vital that we now respond to that public anger, ensure those involved face the full force of the law, show the public things are being put right and restore trust for the future.

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Posted July 13th, 2012 by Ed