LIBOR (FSA Investigation)

Ed Balls Excerpts

Monday 2nd July 2012 Commons Chamber

[Ed Balls (Morley and Outwood) (Lab/Co-op)]

The systematic lying—[Interruption.]

[Mr Speaker]

Order. Everything will be slowed up, the more noise there is. I do not care what the exhortation is for people to create a wall of noise. That should not and must not happen in this Chamber. If we end up being much slower because people are mindlessly bawling their heads off from either side of the House, we will be slower. I do not think the public will be much impressed by that sort of behaviour from either side of the House.

[Ed Balls]

The systematic lying, concealment and arrogant abuse of power revealed by the FSA report into LIBOR market fixing at Barclays bank is truly shocking. As one member of the Vickers commission said this morning:

“Today’s banks represent the incarnation of profit-seeking behaviour taken to its logical limits, in which the only question asked by senior staff is not what is their duty or their responsibility, but what they can get away with.”

Set against the depths of that malpractice, which has now been revealed, and the scale of the challenge we face in reforming and rebuilding trust in British banking, I am afraid that the Government’s decision to reject Labour’s call for an independent and judge-led public inquiry into the culture and practice of banking in our country just will not do. Just as in phone hacking or the Iraq war, so in banking: only with an independent, forensic and open public inquiry—not politicians investigating bankers—can we rebuild trust for the future.

Banks play a vital role in our economy—they lend to businesses, small and large; they help people to save and borrow for mortgages; and many hundreds of thousands of jobs across the UK are dependent on our retail and our global wholesale banking industries—but banking is a profession that depends on trust, and that trust is currently in tatters. The public are rightly baffled and angry about what they learned was happening at Barclays. We have learned that senior bank executives knew about and covered up deliberate market fixing and manipulation of key interest rates. When ordinary people break the law and defraud the taxpayer or the benefit system, they face criminal penalties and jail sentences; the same should apply to bank executives. The public are now rightly asking who they can trust to clear up this mess and sort this industry out.

First, on the issue of criminal penalties, the Chancellor says he will bring forward amendments to the Bill in the House of Lords—amendments that he did not introduce in the House of Commons. Will he confirm that the powers he needs for an FSA investigation to be followed by a criminal investigation are actually on the statute book and that it is the job of the Serious Fraud Office to take forward those investigations, using the powers in the Fraud Act 2006? Will he confirm that section 2 of the 2006 Act already makes it a criminal offence to make “false representation” for personal gain and that it is an offence under section 4 to “abuse” a position of trust for financial gain? Will the Chancellor explain whether such investigations are already under way, and whether it is true that the Serious Fraud Office initially refused to act because of inadequate resources? There is now a real suspicion that the Chancellor’s new conversion to law making is just a smokescreen for the failure of prosecutors to get a grip.

Secondly, on the LIBOR market, we welcome the limited investigation that the Chancellor rather belatedly announced at the weekend. Self-regulation of this market goes back to the 1980s, but will the Chancellor explain why in March, as this scandal started to emerge, the Financial Secretary denied there was an issue and dismissed our calls for investigation and tougher regulation? When he was asked in the Committee whether he had a view on what needed to be done, he replied with one word: “No.” Given how much the Chancellor is now placing his faith in the Bank of England as the leading financial regulator in the future, will he assure us that the Bank did not turn a blind eye to the manipulation of the LIBOR survey?

However, the problems of culture and ethics that have now been uncovered are wider than the LIBOR market. The public are angry, and they rightly ask whether this generation of politicians, regulators and banks can put right the wrongs for which they are paying a heavy price. I say “this generation of politicians” because we must all admit that regulation should have been tougher, and we should all learn the lessons of an open and independent judicial inquiry. For my part—[Interruption.] For my part, I regret—[Interruption.]

[Mr Speaker]

Order. What we cannot have are individual Members who feel that their contributions from a sedentary position are somehow in a different category from the sedentary interventions of other Members. We do not need them. What we need is a bit of respectful listening to what is said by the Chancellor and the shadow Chancellor.

[Ed Balls]

For my part, I regret—as do Ministers and central bankers around the world—that we did not see the financial crisis building and take action, but let me ask the Chancellor this question: do he and the Prime Minister regret consistently attacking us in the Labour Government for being too tough in our approach to regulation, saying that it would undermine City effectiveness? That is what they said.

As for the future of regulation more widely, let me ask the Chancellor another question. Having rightly commissioned the Vickers report, does he now regret coming to the House a few weeks ago and saying that he was watering down its recommendations and weakening leverage ratios, and arguing, shockingly in the light of recent events, that complex derivatives—the very derivatives that led to the appalling mis-selling of interest rate swaps to small firms—should be inside the retail bank ring fence, contrary to the recommendation of Sir John Vickers? Surely that is one U-turn that we need from the Chancellor.

We all have a responsibility to do better in future, to reform our banking industry and to rebuild trust, but we do not believe that another parliamentary inquiry can do the job, just as we rejected that approach in relation to phone-hacking. The Chancellor said today that we did not need more “navel-gazing when we know what has gone wrong.”

How complacent is that? If the Chancellor and the Prime Minister are so confident that their approach is right, why do they not put two options to a vote, and let the House decide? Labour Members will vote for an independent and open public inquiry, not an inadequate and weak plan cobbled together over the course of this morning. The independent inquiry is what our constituents want, and it is the only way to achieve a lasting consensus on reforms for the future.

[Mr Osborne]

There was one question that dared not speak its name: who was the City Minister when the LIBOR scandal happened? Who? Put your hand up if you were the City Minister when the LIBOR scandal happened.

The shadow Chancellor was not here on Thursday, so he has had days to think about it, but there was not one word of apology for what happened when he was in charge of regulating the City. He blamed central bankers around the world and he blamed the Opposition of the day, but he did not take personal responsibility for the time he was regulating the City when the LIBOR scandal started, and that is why he will not be listened to seriously until he does. Indeed, we need to know whether he knew anything of what was going on. Did he express any concern about the LIBOR rate? When he was in the Cabinet and Gordon Brown, the right hon. Member for wherever it is, was Prime Minister, was he concerned about the LIBOR rate and Barclays? We shall find out in due course.

Let me now deal with the specific questions asked by the shadow Chancellor. He said that the criminal penalties exist in legislation. As I said, the Serious Fraud Office—which is totally independent of politicians, and rightly so—is looking at the law and seeing what it can do, but Lord Turner himself has said that the Financial Services Authority does not have adequate criminal powers. [Interruption.] Opposition Members are shouting, but let me read to them something a member of their own Front-Bench team has said. Lord Tunnicliffe said this:

“Criminal sanctions are extraordinarily difficult to bring about because of the burden of criminal law. It is fair to say though that you can’t find them in the current legislation. And, yes, OK, it’s our fault. I hope my leaders don’t hear me say that.”

That is a member of the Labour Front-Bench team clearly placing the blame on the late Labour Government, of which the shadow Chancellor was the principal economic adviser. That is the problem with the current law, and we are seeking an urgent review in order to amend it and make sure we can deal with the problem.

The shadow Chancellor talks about our acting belatedly in respect of regulation. He had 13 years in which to regulate properly, yet in the space of two years we are changing the entire system of regulation by getting rid of the FSA and introducing a change to the structure of banking. That is happening because of the recommendations from the committee that we set up under John Vickers, and we have still not heard from the shadow Chancellor whether he supports John Vickers’ proposals. He often gets up and says what is wrong with them—[Interruption.] Well, if he has just welcomed them for the first time, that is very welcome, but he goes out of his way not to do so on other occasions.

The shadow Chancellor then said that, somehow, a parliamentary inquiry would be wrong and that I was complacent to say we knew what had gone wrong. This is what my predecessor, the right hon. Member for Edinburgh South West (Mr Darling), said at the weekend, however:

“We know what went wrong and we don’t need a costly inquiry to tell us”,

so that is not just the view of the current Chancellor.

I hope the shadow Chancellor reconsiders his position. We will have good people from both sides of this House and the House of Lords to consider the matter. We will put the motion to the House. Let us have a serious inquiry, but let us have an inquiry that comes to a conclusion within a measurably short period so that we can amend the law that will be going before the House next year. That is the sensible step to take. In the meantime, the shadow Chancellor should reflect on his role and his responsibility, as the City Minister who let Northern Rock sell those dodgy mortgages, as the City Minister who let RBS explode, and as the City Minister who presided when the LIBOR scandal began.