March 6, 2013 8:04 pm

Libor scandal led to creation of banking panel

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When the full scale of the Libor rate-rigging scandal emerged last summer, something else became clear to politicians: that ethics and accountability in the banking industry needed to be scrutinised.

Such was the impetus behind the Parliamentary Commission on Banking Standards, a panel of MPs and peers that held its last scheduled hearing on Wednesday.

Announced in July by the chancellor, George Osborne, it was the first parliamentary commission of inquiry for 100 years that examined a specific area of public policy. The last one, into a scandal at Marconi, was considered a disaster and broke down in party political acrimony in 1913.

However, the 10 members of the banking standards commission, which includes a former chancellor of the exchequer and an archbishop, pulled together to sink their teeth into knotty questions such as pay, governance and competition.

While many of the commission’s evidence sessions dissected what had taken place in boardrooms at the height of the financial crisis or the discussions of remuneration committees behind closed doors, its focus was on making the banking system fairer for “the common man”.

Over six months, the commission, chaired by Conservative MP Andrew Tyrie, has grilled the City’s most senior executives and regulators.

It was particularly interested in ways to remove barriers to entry and increase competition in retail banking and in what effect this might have on culture and standards. It also heard evidence on capital and leverage ratios.

Over time it became a forum for politicians and regulators to air their ideas for reforming the scandal-ridden sector.

Lord Turner, chairman of the Financial Services Authority, used an appearance last week to reveal that new small banks will be allowed to operate with lower capital requirements, in an attempt to boost competition.

Andrew Haldane, the Bank of England’s executive director for financial stability, argued in November that he believed creating a common technology platform for retail banking would also spur competition.

But there were also many gruelling cross-examinations scrutinising the behaviour of the industry’s fallen stars.

Some were defiant. Eric Daniels, former chief executive of Lloyds Banking Group, told the commission the bank had been “on the side of the angels” when it sold payment protection insurance, the product at the heart of one of the costliest consumer mis-selling scandals in history.

Others were contrite. Stephen Hester, the chief executive brought in to drive a turnround at Royal Bank of Scotland, told the commission that cultural failings in banking had been responsible for reckless expansion and the “excessively selfish and self-centred” attitude of bankers.

Commission members are now gearing up to produce a final report, expected in May, which will contain a list of recommendations for the government to consider.

“The question is how we can raise standards in banking to a point where the public can feel confident that they will be much better protected in the next financial cycle than they were in this one, and the consumer more confident that they’re not getting ripped off by their banks,” Mr Tyrie told the Financial Times.

 

First independent directors of regulatory body named

A former building society chief executive, a longtime Treasury official and a lawyer who advised the government during the 2007-8 bank collapses have been named as the first three independent directors of the new Prudential Regulatory Authority, Brooke Masters reports.

Iain Cornish, Rosalind Gilmore and Charles Randell will be joined by a fourth external member who is expected to come from the insurance sector. They will join the governor and two deputy governors of the Bank of England as well as the head of the new Financial Conduct Authority on the PRA board. Sir Mervyn King, BoE governor, told a parliamentary commission on Wednesday that he expected the board to play an active role in the PRA’s most important supervisory decisions.

Mr Cornish spent nearly 20 years at Yorkshire Building Society, including eight as its chief executive, before his retirement in 2011. He was a member and chairman of the practitioner panel of the Financial Services Authority, which provided the watchdog with an industry sounding board on regulatory policy. He has also recently agreed to serve as an external reviewer of the FSA’s report into the 2008 collapse of HBOS.

Ms Gilmore spent 26 years at the Treasury specialising in monetary policy and the structure of the UK financial sector, and also worked at the World Bank. She headed the regulatory commission of the UK mortgage and savings industry and served on the Lloyd’s of London regulatory board and the Securities and Investments Board.

Mr Randell is due to join from Slaughter and May in August after 24 years as a partner. He works on corporate finance and mergers and acquisitions and has recently specialised in bank restructuring and financial stability. He advised the UK government on the resolutions of Northern Rock, Bradford and Bingley and the Icelandic banks and gained headlines when his firm billed the government for £22m. He has also worked for the Portuguese government on recapitalising its banking sector.

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