The case for an independent judicial inquiry into the culture of banking – Evening Standard article

Banking is a profession that depends on trust. But trust in our banks has been badly undermined. And today Parliament must act to sort this out once and for all.

We need strong and accountable banks in our country — lending to business and helping families save and borrow. And the City of London is a vital part of our economy with hundreds of thousands of jobs depending on our global financial services industry.

The revelations of lying and manipulation of interest rates exposed at Barclays, and expected more widely, have shocked and angered families and businesses. And they will have angered ordinary bank employees in London and across the country.

This scandal comes on top of banks being found guilty of mis-selling to small firms, and the gross banking irresponsibility that caused the global financial crisis for which we are still paying a heavy price.

So today in Parliament we have an important responsibility. We must decide how to respond to that public anger, ensure those involved face the full force of the law, and show the public things are being put right for the future.

That is why Ed Miliband and I have demanded a proper, open, independent, forensic and judge-led inquiry. It is the only way we can rebuild public trust — not politicians investigating bankers, as the Government is proposing.

It must not only investigate the Libor market scandal but go much wider to cover the whole culture and practice of banking in our country.

It must be organised at arm’s length from the financial services industry, regulators, the Government and MPs.

It must rise above the deeply partisan approach of the Government over the past few days, which yesterday saw George Osborne demean the office of the Chancellor of the Exchequer by making false allegations for which he has no evidence.

And it must have the powers of disclosure and forensic cross-examination that only a judge-led public inquiry can bring. Only an inquiry like this can be sufficiently challenging, wide-ranging, forensic and independent to persuade the public that this crisis is being properly addressed.

This is the same argument David Cameron made a year ago when he established a judicial inquiry following the phone hacking scandal.

Of course, an independent inquiry on banking 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. And I deeply regret that.

But the Conservative Party will need to show some humility too. David Cameron and George Osborne, who seem desperate to avoid a judicial inquiry, will need to explain why they consistently argued before the crash that regulation was too tough, not too lax. They must explain why they are already watering down important reforms to ring-fence retail and investment banks and why giving huge new powers to the Bank of England is the right approach.

The Government has three arguments against Labour’s demands for a proper public inquiry.

First, ministers insist that an independent inquiry would be too wide-ranging and, in the Chancellor’s words, “we know what went wrong”. I fear this badly underestimates both public anger and what needs to be done. And it is deeply complacent to think that everything that needs to be uncovered has been.

A comprehensive review of the culture of the banking system must start with the conduct of bankers and traders, look at the institutions in which they operate, and into the rules, corporate governance, industry approaches and legal framework in which the banks have done business in past decades.

A narrow inquiry only into the Libor scandal and conducted by MPs and Lords — as the Government proposes — would not restore public trust.

Second, the Government says that we need to get on with it. I agree — but we also need the inquiry to be thorough.

That is why yesterday Ed Miliband proposed a two-part judge-led review. An immediate review into the Libor issues should start now, conclude by Christmas and lead to immediate amendments to legislation currently going through Parliament. A second stage into the wider issues should conclude in 12 months. The Hutton inquiry has shown this timetable is achievable.

Finally, the Government suggests that compared to a full judicial inquiry, a parliamentary inquiry can do the job just as well in less time and at less cost.

But our motion says the cost of this inquiry should be borne by the banks, for example out of the record fine imposed on Barclays last week.

Only a judge-led inquiry, under the Inquiries Act 2005, can have the necessary power to compel witnesses to attend, ensure the production of documents and provide the necessary forensic examination and cross-examination of witnesses.

And only a judge-led inquiry can truly persuade the public that the inquiry is properly independent and non-partisan. This is especially true after the rows of the past few days.

Our motion has already been backed by all the opposition parties. I recognise the Government has a majority — and intends to whip its MPs to vote down our judicial inquiry. But we will continue to make the case for one. If, as I fear, further banking scandals emerge, people will look back at this moment and conclude the Government failed to grasp the opportunity.

We must rise to the challenge. Only with an independent and open public inquiry can we rebuild trust for the future.

We owe it to the public. And we owe it to the hundreds of thousands of people on ordinary salaries in the City of London and across Britain who work hard every day, do vital jobs and are angry that the reputation of their profession is being undermined by the irresponsibility of a powerful few.

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Posted July 5th, 2012 by Ed's team