The Libor-rate rigging scandal is a shameful affair which has corroded trust in the UK’s banks, the chair of an inquiry set up to investigate malpractice in the financial services industry said today.
Chichester MP Andrew Tyrie, who will head up a panel of MPs and Lords to investigate interest rate-rigging at the UK’s leading banks, said the reputation of industry was tarnished but could be restored if the right reforms were introduced following the scandal.
The chairman of the Treasury Select Committee said the inquiry would look at what lessons for ‘corporate governance and standards in the banking industry’ could be drawn from the scandal, telling MPs he would be calling the British Banking Association and the regulator the Financial Services Authority.
Chancellor George Osborne said he would be entitled to call Labour former ministers, which would include Ed Balls, if he wanted, as Mr Tyrie denied claims his committee would descend in to a partisan slanging match under pressure from the whips.
Speaking in the Commons, Mr Tyrie said: ‘I won’t countenance a partisan inquiry and I wouldn’t be prepared to chair one either. I do believe that Parliament, both MPs and the (Lords), have something to contribute to clear this mess up but they can’t do it all on their own.
‘By normal standards, the Libor scandal, for which 20 banks around the world are now being investigated, is shocking. It’s corroded trust in the UK financial services industry and it’s a shameful affair.
‘The UK’s reputation has been tarnished but it can be restored and enhanced if we draw the right lessons. The Treasury committee will continue with its inquiry into what has exactly happened.’
Mr Osborne came under pressure in the Commons to announce a full judge-led inquiry, such as the one chaired by Lord Justice Leveson into Press standards, instead of an investigation by MPs.
Labour former chancellor Alistair Darling said it would work only if it was a ‘genuine’ inquiry, while the SDLP’s Mark Durkan (Foyle) said he feared it would become a ‘whips’ stitch-up’.
Mr Darling said: ‘This inquiry will only work if it is a genuine examination of what went wrong. And as I have said before, it went wrong over successive governments over quite a long period.
‘But if it looks like a partisan exercise, of settling scores between the parties, it won’t work. The public may not like bankers, but they don’t care much for politicians either.’
The Chancellor said the investigation could report back in time to introduce changes to legislation being brought in during this Parliament, while its terms of reference would be a matter for Parliament and not the Government.
Mr Osborne said: ‘I completely agree with the sentiment that we should try and make this on a cross-party basis. I think this is the correct way forward to give us answers for next year.’
Senior MPs also demanded the Government look at ways of prosecuting bankers. Sir Peter Tapsell, father of the House, said ministers should look at introducing legislation available in the United States to bring charges against chief executives for criminal behaviour by ‘rogue subordinates’.
Tory MP Sarah Wollaston (Totnes) said a pensioner in her constituency was being pursued through the courts for a modest tax mistake while bankers “telling lies for eye-popping sums” escaped prosecution.
Mr Osborne said the Serious Fraud Office was looking at bringing charges, as Labour former minister Peter Hain said ‘trust would be destroyed’ if nobody ended up in court as a result of the scandal.
The Chancellor said: ‘The Serious Fraud Office is independent of Government, but it is pursuing every avenue to see whether they can bring criminal prosecutions in this case.
‘But it is a matter for them. They are going to come back by the end of this month to tell us whether they can do that and they will have heard what the House of Commons said today.
‘What we also want to do is to make sure in future that the regulators have the criminal sanctions that they need and that is why we seek these investigations to change the law now rather than waiting four or five years until we can do so.’
He also defended criticisms that he had not called on bank chief executives such as Bob Diamond at Barclays to resign.
It was not the job of ministers to ‘hire and fire’ senior bank executives at the Despatch Box, Mr Osborne said, but warned they would be accountable to shareholders.
He also warned it would be difficult to establish how much borrowers or savers lost as a result as bankers were manipulating Libor in different directions, depending on which positions they had taken on any given day.
Labour MP Tom Watson said confidence in the British Banking Association - which is responsible for setting Libor - had ‘ruptured’. It was now only a question of when they had the responsibility withdrawn, he said.
MPs also demanded the Government go further than the recommendation of Sir John Vickers and split the retail division from the so-called ‘casino’ banking practices.
Senior Liberal Democrat MP John Thurso said that although the Government had decided only to create a ‘ringfence’ around retail operations, ministers should now consider forcing the banks to split their operations completely.