John McFall on why it's time to rattle the handcuffs in earshot of bad banking practices
“Pull the other leg, Marcus.”
That was my reaction on seeing the recent advert in the national papers signed by Barclay's chairman, Marcus Agius, on behalf of the bank. He apologised for "what has happened and that you have been let down". But no mention of the nature of what has happened or who/what has been let down. This apology for the Libor scandal amounts to nothing more than a futile gesture.
Saying sorry is the easy part. Doing something about it is the difficult exercise.
I well remember in 2008 the chiefs of the major banks falling over themselves at the Treasury Committee to express remorse. When I pressed one on what he was sorry for, he said it was for the failure of the system, not his personal part in it.
If authentic change is to take place, it has to be accompanied by a firm purpose to amend for transgressions and ensure that they are forever consigned to the past. That requires a deep cultural change within the organisation and there is no hint that this is being contemplated.
Appreciating that banking and financial services are part of wider society and not just for those at the top to make money in every dubious way possible is fundamental to lasting cultural change in this industry. What is so important about Libor is that it plays a hugely influential role in shaping the terms of global commerce. It is more than a benchmark. In fact, it is a health barometer for the global financial system
The likely net effect of this rigging of Libor has been to encourage more reckless risk-taking, making the financial crisis worse and incurring a heavier cost for ordinary people in mortgages, credit card and loans as well as in lost jobs, homes and savings.
The compensation bill according to The Financial Times could be upwards of £20bn. Add that to the £8bn compensation for Payment Protection Insurance (PPI) and the total for these two scandals is almost £30bn – a figure that exceeds the 2011 GDP for countries such as Cyprus, Ghana, Serbia and Uruguay.
As a then customer of Barclays in 2005, I sought a loan for which I was asked to take out a PPI. I explained to the courteous member of counter staff that it was inappropriate for my circumstances. Yet I was subsequently bombarded with seven or eight separate letters warning me of the folly of my rejection of their offer.
Years later, in a conversation with the Chairman of one of the major banks he shook his head in sorrow and exasperation when he declared that the gravest of alarm bells should have been ringing at the astronomical profit returns of 80% or so on one product line. But the plain truth is that they knew they were selling a product which was proved to be toxic. Quite simply, it didn't matter to those at the top since their bonuses and incentive structures were so short-term that adverse consequences would be for someone else to pick up. And so it has proved to be.
As a member of the newly established Joint Committee on Banking I will be spending the next few months looking in depth at the economics, structure, culture and purpose of the sector.
Given that there appears to be more serious crime and misdemeanours taking place within the walls of some of our financial institutions presently than there is in our town centres at weekends maybe one initiative ready for implementation should be a financial police service, separate from the City of London police.
The editor of The Spectator has written that London is now the scene of many a global financial crime and George Osborne makes clear that a heavy-handed approach is required since Libor manipulation is nothing short of flagrant criminal conduct. Reflecting on these comments, perhaps it is time to start treating the dealer on the trading floor engaged in these illegal activities with the same contempt as the dealer on the street.
Rattling the handcuffs within earshot of the boardroom could be a first step to ensuring a transformed culture in the industry.
Lord John McFall of Alcluith is a member of the Joint Parliamentary Commission on Banking Standards and a backbench Labour Peer in the Lords