Professional Standards in the Banking Industry

Debate between Gordon Banks and Ed Balls

Thursday 5th July 2012 Commons Chamber

[Ed Balls]

I will not give way now.

The reality is that we must all admit that regulation should have been tougher, including those who argued for less regulation. I say to the Chancellor that I will await, and press for, his withdrawal and apology day after day until I get it. All of us on both sides of this House need to show a little more humility, including the Chancellor—and the Prime Minister, too.

I am more than willing to attend an inquiry and answer any questions. What the public will ask about this Chancellor and this Prime Minister as they listen to this debate is, why are they not prepared to do the same in the public interest? That is the question they will ask.

Let me turn to the motion. The Government have three declared objections to a judicial public inquiry: scope, speed and form. Let me take each in turn. First, on scope, the Prime Minister and the Chancellor argue that we have already had the Vickers commission on banking, which reported last September, and now the Financial Services Authority will report. They say we do not need to have a more broad-based inquiry that, in their view, will lead to more uncertainty. “Get on with it,” they say, and it is right that there are a number of important questions that need to be asked about the LIBOR scandal, not least why, when this market was investigated by the British Bankers Association in 2008, the then chair, now Lord Stephen Green, gave it a clean bill of health. We need to look at these issues, including, if the Treasury and the BBA urged tougher regulation when they discussed LIBOR on 5 March 2012, when the Financial Secretary was asked the next day in Committee whether we needed a change in law, why did he say no? These are important questions that need to be addressed.

The issues go much wider, however. A member of the Vickers commission said earlier this week that

“banks, as presently constituted and managed, cannot be trusted to perform any publicly important function, against the perceived interests of their staff. 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 can they get away with.”

That is what a Vickers commission member says.

[Gordon Banks (Ochil and South Perthshire) (Lab)]

Given all the banking scandals to which my right hon. Friend has alluded, how will the banks be able to play a fundamental and trustworthy role in the economic growth and future of this country without our having an independent judge-led inquiry?

[Ed Balls]

That is a very important point. Banks play a very important role in our economy. Hundreds of thousands of jobs depend on our retail and global wholesale banking industry. It would be very dangerous to take risks with that industry and those jobs. It makes no sense to throw the baby out with the bathwater. I say to the Chancellor, and those who use the importance of our financial services industry as an argument against a broad-based inquiry, that they badly under-estimate both public anger and what needs to be done, because banking is a profession which above all needs trust, and that trust is currently badly undermined.

The Chancellor said earlier this week:

“We know what went wrong”.—[Official Report, 2 July 2012; Vol. 547, c. 613.]

When the public hear that, I do not think they believe him. That is the problem. In the light of recent events, when they find out that the Government have decided, against the recommendation of Sir John Vickers, to allow complex derivatives inside the retail bank ring fence, they think, “Well, could this allow the appalling mis-selling to happen again?”

Let me quote to the House the comments of Mr Martin Wolf, a member of the Vickers commission, who was asked last week whether he agreed that any sort of derivative should not be sold to a retail bank. He was asked whether they should be kept separate, and he replied:

“We wanted to separate them completely and the Government has gone back on that and we think that is really quite dangerous. It leads to the very serious risk of mis-selling which we have seen has been a constant theme of the relationship between retail banks and relatively inexperienced, uninformed clients.”

That is right, and that is why a LIBOR inquiry is not enough. We need to look at these Vickers issues as well.

--- Later in debate ---

[Ed Balls]

Despite trying to intervene, the hon. Lady has been listening to my speech and so will have heard me say that mistakes were made and humility is needed from Members on both sides of the House. As a former barrister, she will also know, as will many Members on both sides of the House who have worked in the law, accounting or financial services, that the highest standards of integrity not only are necessary, but need to be seen if they are to command public confidence. That is the argument for our inquiry. I ask her and hon. Members on both sides of the House to think hard and support our motion today to put the banking industry on a sound footing.

We hope to win the argument this afternoon. We aim to persuade hon. Members to vote with us and support our motion. We recognise that the Government have a majority and intend to whip the vote tonight. If our motion is unsuccessful and the Government railroad through a parliamentary inquiry—they may be reconsidering now—we will continue to make the case for a full judicial inquiry. If further banking scandals emerge, as I fear they will, people will look back at this moment and conclude that the Government failed to grasp the opportunity.

[Gordon Banks]

Does my right hon. Friend agree that, perhaps, the activity and findings of the Leveson commission are the grounds for the Government’s reluctance to join the Opposition in the Lobby this afternoon to vote for a full, judge-led, public inquiry?

[Ed Balls]

I do not know the answer to my hon. Friend’s question; I do know that the open process of the Leveson inquiry has been challenging to Members on both sides of the House—but rightly so. If questions are raised, in an open judicial inquiry, about past regulatory decisions, that is right and proper; if they are raised about decisions made in the mid-1980s, that is right and proper; and if questions are raised about the financing of political parties and where donations comes from, that is right and proper as well.

We should have no fear of answering those questions, but, from what we have heard from Government Front Benchers, we know that the Government have no intention of holding such a full, open, public inquiry; they want an inquiry on the shortest timetable and in the narrowest way. The Attorney-General has told us why one cannot be held on a timetable for completion by Christmas, but let me remind him what the Prime Minister said on Monday:

“The Vickers Bill—the banking Bill—will be introduced in the House of Commons in January, and I want an inquiry to be completed by then so that we can take the best of that inquiry and put it in the Bill.”—[Official Report, 2 July 2012; Vol. 547, c. 590.]

But if that inquiry cannot do the job, how will we end up with the best? We will end up with the worst of all worlds.