Britain deserves a US-style reckoning | Observer editorial
British banks must be brought to heel and swiftly
Presenting the US Financial Crisis Inquiry Commission's report last week, chairman Phil Angelides declared the turmoil of the financial crisis had been all-too avoidable. It was the result, he concluded, "of human action and inaction, not of Mother Nature or computer models gone awry". He added: "The captains of finance and the public stewards of our financial system ignored warnings and failed to question, understand and manage evolving risks within a system essential to the well-being of the American public." It was, the commission had decided, "a big miss, not a stumble". Some of the findings, which uncovered illegal irregularities, have been passed to the police.
The same could be said of Britain's captains of finance and our public stewards, but so far no such independent inquiry has appeared, offering damning indictments, useful recommendations or prompting police investigations. The Labour government asked the Financial Services Authority, the regulator, to investigate. Later, it did launch an inquiry, co-chaired by the then chancellor, Alistair Darling, which was largely populated by bankers who, unsuprisingly, concluded there should be as little additional reform and regulation as possible. As former City minister Paul Myners has said, this was not New Labour's finest hour.
The coalition government initially showed more steel, setting up an independent banking commission to investigate how our banks should be structured in future in an effort to avoid a second crisis and better to support their customers. It has introduced a stronger code on tax avoidance, along with a levy on bank profits, but so far not much more.
As for the bankers themselves, they demonstrated at the World Economic Forum in Davos their belief that the time for investigations, apologies and banker-bashing is over. They must get on with the job of financing recovery without any further regulation or public scrutiny. The Conservative party ! leadersh ip appears sympathetic to the bankers' pleas and for some months has been negotiating "Project Merlin", a deal in which the government calls off all "banker-bashing" in return for commitments by the banks to lend the tens of billions necessary to finance recovery, along with small steps towards more transparency in executive pay.
So the political reality is that the combination of an opposition unwilling to go beyond the weak policy with which it left office, and an increasingly self-confident banking community, has robbed the process of banking reform of any momentum. Only obstinacy from Nick Clegg and Vince Cable is preventing virtual capitulation to banking interests. Instead of negotiating Project Merlin now, there needs to be a determination to reform the banks structurally, including the disclosure of bank bonuses.
The City of London is, of course, important to Britain, but over the last 30 years it has come to dominate the UK economy, to the rest of the country's disadvantage. We deserve an investigation vigorous enough to root out the facts about what went wrong over the past decade, something similar to the US Financial Crisis Inquiry Commission. We have yet to be offered that. Let's not compound the error by compromising the drive for reform.
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