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Last updated: February 6, 2013 6:35 pm
Greg Clark, City minister, promised to make Britain’s banks the cleanest in the world after what he called “another day of shame” for the financial services sector.
Mr Clark told MPs on Wednesday that the Libor scandal at Royal Bank of Scotland was “an extremely serious matter motivated by greed” and that the full force of the civil and criminal law should be deployed against wrongdoers.
He said the flow of banking scandals, including the mis-selling of insurance and interest rate swaps, made it vital that the City relearned the ethical standards that helped to make it the world’s pre-eminent financial centre.
“If we hold our financial sector to higher standards than the rest of the world, that’s something we should not shrink away from,” Mr Clark said, adding that the City should return to the days when the maxim “my word is my bond” applied.
“We must rebuild the bastion of confidence in Britain,” he said, arguing that the UK could gain a competitive advantage by showing that its banks were the best regulated in the world.
That view was shared by Andrew Tyrie, Tory chairman of the Commons treasury committee, who said that high quality regulation was not just morally right but would “attract business to the UK”.
Mark Field, the Tory MP who represents the Square Mile, agreed that banks had “nothing to fear” from robust regulation and that fears of banks moving to jurisdictions with lower standards were overblown.
However he urged banks to come clean on past scandals – including mis-selling of products – to speed up the process of rebuilding trust in the sector.
Vince Cable, Liberal Democrat business secretary, admitted that the “early hope of reprivatisation now looks a distant dream, unless at an unacceptable loss”, but said a range of options for a disposal should be on the table.
Mr Cable revived the Lib Dem idea of a distribution of shares to the public, allowing them to enjoy the upside of any revival in the RBS share price above a predetermined floor set by the Treasury.
The idea, originally floated by Portman Capital, is among a range of possibilities being considered by George Osborne, chancellor, whose aides on Wednesday described the proposal as “interesting”.
Regulators across the globe probe alleged manipulation by US and European banks of the London interbank offered rate and other key benchmark lending rates
Previously the chancellor had been dismissive of the proposal, but his team say they have no problem with the idea being floated, arguing only that it was “a bit premature”. Mr Cable said a debate over RBS’s future could be an issue at the next election.
The government’s 82 per cent stake in RBS is both a political and economic burden for Mr Osborne. Last year a row over a proposed £1m bonus for Stephen Hester, the bank’s chief executive, reverberated at Westminster for weeks, with Mr Osborne insisting he could not intervene in spite of the bank’s poor stock market performance.
In the end Mr Hester bowed to political pressure and gave up the bonus, but the episode prompted Mr Osborne to vow this year that he would not be sucked into another public relations disaster.
This year the chancellor discarded the restrictions imposed by his “arm’s-length” relationship with RBS and told the bank that it could not expect the taxpayer to pay a Libor fine to US authorities.
“I am clear that the bill for any US fine related to this investigation should on this occasion be paid for by the bankers and not the taxpayers,” he said.
What is the London interbank offered rate and how did things go wrong?
Mr Osborne was also seen by RBS insiders to have played a hand in the removal of John Hourican, head of the investment bank, with one senior banker accusing the chancellor of behaving like “a school bully”.
However the bank will be dragged back into the political spotlight again next Monday, when Mr Hester and Sir Philip Hampton, chairman, are hauled before the cross-party parliamentary banking commission.
The session is expected to focus on the bank’s role in the Libor affair, with Mr Tyrie saying he wanted to look at “appalling behaviour” across the banking sector.
“Systematic rigging of important benchmarks such as Libor was pervasive throughout the banking industry over many years,” Mr Tyrie said.
He said the commission would also discuss the future of RBS, with many politicians wanting to see the bank accelerate its move out of investment banking and increase the focus on its core retail business.
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