:00:16. > :00:19.but they have done an awful lot. No. 1 in reform. Tonight, after the
:00:19. > :00:22.2008 banking crisis we were told that banks were cleaning up their
:00:22. > :00:26.act but does what has happened at Barclays show that casino
:00:26. > :00:30.capitalism is still the dominant force in the financial system?
:00:30. > :00:34.Good evening. Today, Barclays are the villains with calls for Bob
:00:34. > :00:38.Diamond to resign over how dealers at the Bank manipulated lending
:00:38. > :00:44.rates. However, 16 other banks are under investigation for the same
:00:44. > :00:47.thing, including HSBC and RBS. What does this tell us about the
:00:47. > :00:57.morality of an industry that has already brought the world's economy
:00:57. > :00:58.
:00:58. > :01:03.to its knees? September 2007, Iran on the banks.
:01:03. > :01:06.People panic, queuing to get money out of Northern Rock. -- a run.
:01:06. > :01:13.Months later it was nationalised but it turned out this was not the
:01:14. > :01:20.only bank in crisis. In 2008, the Treasury poured �37 billion worth
:01:20. > :01:25.of taxpayers' money into roll-back of Scotland, Lloyds TSB and HBOS,
:01:25. > :01:29.to avert the collapse of the financial sector. -- Royal Bank of
:01:29. > :01:37.Scotland. What followed was public anger. The banks were told to clean
:01:37. > :01:46.up their act. So there were apologies. Public wringing of hands,
:01:46. > :01:52.and mea culpas. We are profoundly, unreservedly sorry. We were
:01:52. > :02:01.particularly concerned about the serious impact on shareholders,
:02:01. > :02:05.staff and the anxiety caused to customers. The a a profound and
:02:05. > :02:13.unqualified apology for the distress caused. -- there is a
:02:13. > :02:16.profound. And they are sorry at what has happened at HBOS. It has
:02:16. > :02:21.affected shareholders and colleagues, and communities in
:02:21. > :02:25.which we live and surf. It has affected taxpayers. We are
:02:25. > :02:31.extremely sorry for the events that have brought this about. Since then,
:02:31. > :02:35.what had actually changed? It is tempting with the headlines we have
:02:35. > :02:40.seen to say it is the same old banks making the same mistakes, and
:02:40. > :02:44.for them a lot has changed. Particularly, they are required to
:02:44. > :02:49.carry more or safety buffering in capital terms, which makes it more
:02:49. > :02:53.expensive to do business. Their loan books have struggled through
:02:53. > :02:58.the downturn, because their customers are in trouble. For those
:02:58. > :03:03.reasons, Costa going up. They pass the cost on to consumers. We have
:03:03. > :03:08.required them to take fewer of the really reckless gambles that they
:03:08. > :03:15.were taking in the good years. As a result, they have become unpopular
:03:15. > :03:19.because credit is now tied. tight. This has been a disastrous
:03:19. > :03:23.week for British banking. Thousands of account holders with RBS and
:03:24. > :03:28.NatWest have lost out. Because of a computer software -- computer
:03:28. > :03:35.software upgrade that went wrong. The taxpayer's own large chunks of
:03:35. > :03:38.these banks and they have had trouble accessing their money. Some
:03:38. > :03:46.have not had wages paid on time, which means the bills have not been
:03:46. > :03:51.paid and people have suffered. Yesterday, Barclays was fined �290
:03:51. > :03:56.million for deliberately fixing the lending rates set between the banks.
:03:56. > :03:59.But were the banks not meant to have turned over a new leaf? If you
:03:59. > :04:04.look at the problems for RBS over the last week with communications
:04:04. > :04:14.issues, very different set of issues from those that Barclays
:04:14. > :04:14.
:04:15. > :04:21.have faced. One is an IT fiasco and the other is a very serious scandal.
:04:21. > :04:24.What they have got in common is the issue of trust. And there is the
:04:24. > :04:29.cost to the customer. How are we coping? We are seeing the same
:04:30. > :04:35.issues that we saw four years ago. High interest rates, for that
:04:35. > :04:38.payments, high interest charges on overdrafts, particularly on
:04:38. > :04:42.authorised overdrafts, we are still seeing banks not responding to
:04:42. > :04:46.complaints as we would expect them to. Basically, it is business as
:04:46. > :04:52.usual. So are there more money worries to
:04:52. > :04:56.come? You can be sure that after Barclays, many banks, not just in
:04:56. > :04:59.Britain and not just in the City of London, are going to be drawn in.
:04:59. > :05:03.Big fines will be paid and reputations will be getting
:05:03. > :05:06.shredded. There have been plenty of apologies
:05:06. > :05:10.in recent days. It sounds like the could be more from others in the
:05:10. > :05:15.future. -- there could be more.
:05:15. > :05:19.Catriona Renton. I am joined by the Labour peer, Lord McFall, former
:05:19. > :05:24.chair of the Treasury Select Committee involved in trying to set
:05:24. > :05:28.up a new high-speed -- high-street bank, unsuccessfully as it turns
:05:28. > :05:32.out. In Edinburgh, financial journalist Ian Fraser, and Ben
:05:32. > :05:38.Thompson is the former Chief Executive of Investment Bank. --
:05:38. > :05:43.investment bank, Novo Group. Ian Fraser, this abuse of public trust,
:05:43. > :05:50.this contempt for customers. Does trust count for nothing in banking?
:05:50. > :05:54.I think the banks have sacrificed trust over the past two decades,
:05:54. > :06:02.particularly in the past decade. You just have to look at how the
:06:02. > :06:10.banks have behaved in a number of different areas including the
:06:10. > :06:17.scandal with rigging of LIBOR. The failure of the UK government, the
:06:17. > :06:20.Labour government between 1997 and 2009, the failure to properly
:06:20. > :06:30.regulate the financial services sector. They entered the race to
:06:30. > :06:34.
:06:34. > :06:41.the bottom. This decision, made by Gordon Brown and Tony Blair around
:06:41. > :06:46.2002, to pick up business from the US as a result of an Act passed in
:06:46. > :06:50.that year before the collapse of Enron and other businesses, I hope
:06:50. > :06:54.this is not too long-winded... are basically saying that America
:06:54. > :06:57.tried to clean up its act and Britain said we will head off in
:06:57. > :07:01.the other direction. They exactly. Tony Blair and Gordon Brown made
:07:01. > :07:06.that choice and are reaping the consequences.
:07:06. > :07:11.Do you accept that? Why was there such a light touch in regulation?
:07:11. > :07:14.except that the mantra was light touch regulation and the banks went
:07:14. > :07:19.with it because the integrity of banks was not questioned. But what
:07:19. > :07:25.we see today is a game changer. Both in terms of the integrity of
:07:26. > :07:32.the market, and also the market pricing, which was raided. One
:07:32. > :07:37.SA80s a game changer, -- when I say it is a game changer, we cannot
:07:38. > :07:42.just allow an inquiry, with a few recommendations. What we need is a
:07:42. > :07:48.judicial inquiry into the whole system. I wanted a Royal Commission
:07:48. > :07:52.when the banking crisis erupted. That was not accepted. Now it has
:07:52. > :07:59.gone so far that we need that a judicial inquiry. Should Bob
:07:59. > :08:03.Diamond resigns? It is a deeper issue. It is the culture of the
:08:03. > :08:06.institution. Does that send out a specific message if he does not
:08:06. > :08:11.resign? I think so because corporate governance that Barclays
:08:11. > :08:17.has failed. They need personal responsibility, whether it is the
:08:17. > :08:23.chair and himself or both. What is interesting about this changing --
:08:23. > :08:26.trading, that is not a criminal offence under FSA regulation.
:08:26. > :08:33.have been in the company of the Chief Executive of the deficit this
:08:33. > :08:37.morning. And I made the point to him but they have to go further. --
:08:37. > :08:43.Chief Executive of the FSA. Today, the story was in not taking his
:08:43. > :08:50.bonus, Bob Diamond, and that is totally inadequate. Keep in mind
:08:50. > :08:55.that the American signed -- American side find them $240
:08:55. > :09:00.million and we only find them �60 million. Do you think that the
:09:00. > :09:04.regulation should happen sooner rather than later? Yes. If this was
:09:04. > :09:08.left -- this was left to the market and the Bankers Association and now
:09:08. > :09:12.the Government have to step in and say that we need to ensure that
:09:12. > :09:16.this system is more robust and has integrity to it. It was dependent
:09:16. > :09:22.on the honesty of the banks saying what their day-to-day lending rate
:09:22. > :09:29.would be. Which, now, counts for nothing. Exactly, that is why there
:09:29. > :09:32.is edition -- deeper issue. We have heard so often about the Masters of
:09:32. > :09:35.the universe mentality in the industry. Do you think people
:09:35. > :09:39.working in investment banking thought themselves above the law
:09:39. > :09:45.because most often they are? think the culture of investment
:09:45. > :09:48.banking is not fit within a commercial bank. Vickers was on the
:09:49. > :09:52.right track when he did his report but he did not go far enough. We
:09:52. > :09:55.need to separate commercial banking from investment banking. The
:09:55. > :10:01.culture of bonuses and profit taking and investment banking
:10:01. > :10:08.should not be next with what should be vanilla commercial banking were
:10:08. > :10:18.people make loans and take deposits. The attitude of integrity and trust
:10:18. > :10:23.in a traditional bank is what we How do we regulate the behaviour of
:10:23. > :10:33.the likes of the derivatives traders? I do not think that is
:10:33. > :10:36.part of the bank. It is not a question of size. It is a question
:10:36. > :10:42.of the mindset of an investment banker, which is very different to
:10:42. > :10:50.a commercial banker. This is exactly the same thing which
:10:50. > :10:54.happened in the 1930s. You have to separate out the commercial bank
:10:54. > :10:59.from an investment bank. We have to go back to recognising that these
:11:00. > :11:06.two cultures do not mix, no matter how much you regulate. In the end,
:11:06. > :11:12.you have to find you have to separate the two. Let us talk about
:11:12. > :11:18.the customers. They are having problems of mortgages and personal
:11:18. > :11:22.loans. Do you think some mechanism for compensation should be
:11:22. > :11:32.structured for then? Even if there are no criminal cases coming out of
:11:32. > :11:33.
:11:33. > :11:40.this, should there be some civil action? I think this fig leaf that
:11:40. > :11:45.this was done privately between the banks and the British Bankers
:11:45. > :11:49.Association means that there will not be criminal cases against them.
:11:49. > :11:59.But I think this could open the floodgates for lawsuits across the
:11:59. > :12:03.
:12:03. > :12:09.world. But any relationship between a customer and the banks between
:12:09. > :12:19.2005 and 2009 could actually be challenged in the courts. As was
:12:19. > :12:21.
:12:21. > :12:25.said earlier in the programme, it is the nuclear bomb. HSBC, America
:12:25. > :12:35.seems a lot more structured in its response to a situation such as
:12:35. > :12:45.
:12:45. > :12:50.this. One G think we could learn from America? They are are lax as
:12:50. > :12:57.regards regulation. We have to admit this is a long-term problem
:12:57. > :13:05.with our banking. We have got to professional lives and banking,
:13:05. > :13:10.whether it is retail banking or investment banking. There needs to
:13:10. > :13:17.be professional standards, so that people can be disciplined. If you
:13:17. > :13:22.look at other organisations, it was about their culture, their
:13:22. > :13:25.behaviour and their competence. It is simple. What we see about
:13:25. > :13:33.Barclays to date is that the culture and behaviour were totally
:13:33. > :13:41.unacceptable. Do you accept that the what an American commentator
:13:41. > :13:50.said today that the government, particularly Labour, was far too
:13:50. > :13:58.cosy with the financial sector? When I was chairman of the Treasury
:13:59. > :14:05.committee, as could see that banking was this global entity and
:14:05. > :14:09.was needed to be regulated by a general set of rules. At the time,
:14:09. > :14:19.it was given that what was happening in banking was too
:14:19. > :14:25.complex for the ordinary person to understand. But what was going on
:14:25. > :14:33.was not actually beyond any means of understanding of a person with
:14:33. > :14:39.an inquisitive mind. That is the issue. That is the source of all
:14:39. > :14:44.the problems here. Once you swipe that away, you can begin to
:14:44. > :14:49.understand exactly what has been heartening. Other banks are being
:14:49. > :14:54.investigated. The regulators have indicated to the BBC that the banks
:14:54. > :15:00.are not co-operating as fully as Barclays dead. Barclays has taken a
:15:00. > :15:04.big hit and this because it has come out first. What does the non
:15:04. > :15:10.co-operation of other banks say about bankers attitudes to any sort
:15:10. > :15:14.of regulation or investigation? I do think that no one likes to
:15:14. > :15:18.come out and and that their problems. Barclays obviously
:15:18. > :15:22.realise this was going to come out and decided to come clean force. We
:15:23. > :15:28.will see in the next few weeks the more banks are forced to do this.
:15:28. > :15:31.The scrutiny will turn up on them. The extent of the e-mails between
:15:31. > :15:36.traders and other banks will come to light. I do not think they will
:15:36. > :15:42.be able to hide for long. I think in the next few weeks we will see a
:15:42. > :15:49.number of other announcements. Another thing we are expecting
:15:49. > :15:59.tomorrow, if financial services are so she shared about a possible
:15:59. > :16:03.
:16:03. > :16:09.insurance scam, which may well involve RBS. This is much bigger
:16:09. > :16:18.than many other scandals, as it will affect many small businesses.
:16:18. > :16:23.This was from 2005 to 2009, when a number of UK banks were no selling
:16:23. > :16:28.these interest-rate swaps or Nice debt systemic business to their
:16:28. > :16:34.smaller major customers and a lot of them have been destroyed or put
:16:34. > :16:40.out of business and had homes repossessed, etc, because of the
:16:40. > :16:45.Bank's behaviour. It is quite pleasing that the FSA has decided
:16:45. > :16:50.to respond to the public clamour for an investigation about this. In
:16:50. > :16:55.other instances of Bank I more or misbehaviour, it has taken years to
:16:55. > :17:05.have any sort of response. It shows that they are now responding well
:17:05. > :17:08.
:17:08. > :17:12.when there is a wealth of evidence supporting something. Finally, at
:17:12. > :17:20.Lord McFall, you had been interested in setting up a new bank,
:17:20. > :17:26.which has not been successful. I was with the German ambassador or
:17:26. > :17:30.a couple of weeks ago and said that they have devolution of banks. They
:17:30. > :17:35.have small banks serving manufacturing industry and that is
:17:35. > :17:40.what we need in this country. The manufacturing industry has not been
:17:40. > :17:46.best served by the set-up at the moment. We need a fundamental
:17:46. > :17:52.change. The Government have to get a grip of this and put any 15-20
:17:52. > :17:56.you plant to get this back on track. What is banking about? It is about
:17:56. > :18:01.delivering economic respect to individuals and to businesses. We
:18:01. > :18:07.have failed to do that and that is the root problem here. It is about
:18:07. > :18:14.the culture and banking. Dewi have to leave it there. Think you're
:18:14. > :18:19.very much. A quick look at tomorrow's papers. The helped his
:18:19. > :18:23.stocky about rail chaos as Scotland is cut off by it landslides and the
:18:23. > :18:28.Scotsman Leeds with fraud Office called in over Berkeley scandal. In