Banks ‘authors of their own demise’
By Jonathan Moore
Banks have only themselves to blame for the collapse of the sector, according to an influential committee of MPs.
In its second report on the banking crisis, the Treasury committee said the culture of risk-taking in the British banking industry had led to the meltdown of the financial system.
It said the “astonishing mess” was created not only by bankers, but also by the supervisory system put in place to protect the public.
“We have experienced a comprehensive failure of the banking system at all levels,” said chair of the committee John McFall.
“Governments, politicians, regulators and central bankers in the UK and across the world also share a responsibility for sustaining the illusion that banking growth and profitability would continue for the foreseeable future.”
Today’s report looks both at the origins of the crisis and the steps the government has taken to resolve it so far.
“Whilst we would hope that the nature of banking, and bankers, would change in response to what has happened, the responsibility also falls on the regulator to create a more durable framework for finance in the future,” Mr McFall continued.
“Rewards for failure must not be repeated.”
The committee was supportive of the government’s decision to recapitalise failing banks and welcomed the conditions placed on those banks in receipt of public funds.
The report also welcomed the asset protection scheme but concerns were raised about the lack of information on how much it would cost the public and urged the government to be quick in releasing such information.
Similarly there were calls for UK Financial Investments (UKFI) – the company set-up by the Treasury to handle the government’s banking investments – to be placed on a firm statutory basis as soon as possible with a clear vision as to how the government would withdraw from the banking sector.
Mr McFall said: “It is not in the national interest for UKFI to remain so enigmatic a body.
“Given the importance of the task entrusted to it and the vast sums of public money involved, we need reassuring, not only of its independence, but also that there are adequate mechanisms in place to make it properly accountable to parliament and the public.”
Concerns, echoing those of the business community, were raised about banks lending to small business. The report said it deplored the behaviour of some banks which received public money and then proceeded to impose sharp rises in bank charges on established customers.
As for the future of the banking industry, the committee said it found the idea of separate retail and investment banking institutions put forward by the governor of the Bank of England “very attractive”.
The Tories siezed on the report as evidence against the prime minister’s stewardship of the economy.
“As the independent Treasury select committee report says today, there is still no clear strategy in the government as to how to deal with the continuing credit crunch,” shadow chancellor George Osborne said.
“Gordon Brown’s incompetence in this matter is inexcusable. Families and businesses are going bankrupt across the country, and we urgently need radical action on credit.”
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