Ed Miliband calls for public inquiry into banks

http://www.guardian.co.uk/business/2012/jun/30/ed-miliband-public-inquiry-banks

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Ed Miliband has called for a public inquiry into the "institutional corruption" of the banking industry after a series of scandals has rocked several high street banks.

The Labour leader said tougher rules and jail terms were needed to tackle the immoral culture and practices committed by a "corrupt elite" in Britain's banks.

His condemnation was echoed by the Bank of England governor, Sir Mervyn King, who demanded a "real change in culture" as Britain's lenders were left reeling after a of controversy.

The justice secretary, Kenneth Clarke, said bankers who had committed crimes must be brought to trial.

Miliband pushed for a 12-month investigation to "find out what is going on in the dark corners of the banks" after the Financial Services Authority (FSA) uncovered "serious failings" in the sale of complex financial products to small businesses, just days after interest rate-rigging at Barclays was revealed.

The taxpayer-backed Royal Bank of Scotland (RBS), HSBC and several other lenders are also being investigated for manipulating the rates at which banks lend to each other, known as Libor and Euribor, to boost their profits.

In an interview with the Times, Miliband said: "There hasn't been a proper reckoning for what happened in the banking crisis. The bankers told us – it's all fine, we've cleaned everything up. But I'm afraid that doesn't hold water any more."

He added: "We've got to have an open, independent inquiry with hearings to find out what is going on in the dark corners of the banks. Some of it clearly was illegal, but it goes well beyond that.

"There is a problem with how people operate. This isn't just about regulation, it's also about culture and ethics."

Miliband said the inquiry, set up with cross-party support, would be asked to draw up a bankers' code of conduct going beyond the "narrow" professional standards enforced by the FSA.

Calling for the worst offenders to receive prison sentences, he said: "It should be about probity, honesty, integrity. Bankers should be struck off if they do the wrong thing … this is not a victimless crime."

Clarke said there should be criminal investigations and prosecutions where financial crimes had been committed.

"This is still being investigated, no doubt, but once these investigations are complete, if they have committed criminal offences they should be brought to trial," he told the BBC Radio 4 Today programme.

The former chancellor said some of the banks' actions that came to light this week were shocking.

"Some of it is distorting vital interest rates, some of it is knowingly selling products they know are worthless to the less sophisticated people you are selling it to – which I regard as obtaining money by deception," he said. "Then there is the total moral bankruptcy of the comments being made by the people who are doing it."

King said he did not believe a Leveson-style inquiry was needed but condemned conduct in the industry.

"From excessive levels of compensation, to shoddy treatment of customers, to a deceitful manipulation of one of the most important interest rates and now news of yet another mis-selling scandal we can see we need a real change in the culture of the industry," he said.

The FSA revealed earlier that Barclays, HSBC, RBS and Lloyds Banking Group had agreed to pay compensation to customers who were mis-sold interest-rate hedging products.

Around 28,000 of the products have been sold since 2001 and may have been offered as protection, or to act as a hedge, against a rise in interest rates without the customer fully grasping the risks.

The findings come after Barclays was fined £290m by UK and US regulators for manipulating the rate at which banks lend to each other.

Serious Fraud Office investigators are in talks with the FSA over the scandal while the Treasury has started to look at strengthening criminal sanctions for those responsible for market abuse.

Miliband described the Barclays fiasco as "the unacceptable face of capitalism", and called on Diamond to step down.

But Diamond, who was head of the bank's investment arm at the time of the allegations, reportedly told a meeting of analysts at US bank Morgan Stanley that he would not resign.

The American banker, who waived his bonus for 2012 in light of the claims, has agreed to appear in front of the Treasury select committee to account for his bank's actions.