18 March 2012
Demands for a Leveson-style public inquiry into the UK’s dysfunctional banking sector are reaching a crescendo following the FSA’s partial whitewash of the RBS collapse, a cover-up of events surrounding the Bradford & Bingley rights issue, doubts about the regulator’s commitment to getting to the bottom of what happened at HBOS and much establishment wagon-circling besides.
Significantly, both prime minister David Cameron and chancellor of the exchequer George Osborne urged the Labour government of prime minister Gordon Brown to launch a no-holds-barred inquiry into the financial crisis when they were in opposition in November 2008. Strangely enough they have not repeated the call since entering Downing Street, leaving the field open to others to take the baton (see conclusion of this blog post).
Paul Moore, former head of group regulatory risk at HBOS, who was dismissed after seeking to alert his bosses to the disastrousness and toxicity of the Edinburgh-based bank’s business model, did so last Thursday giving some powerful reasons why we need a full, open, independent, public inquiry into the banking sector.
It is becoming increasingly clear that Britons are unlikely to regain trust in their banks or financial system, unless and until the reasons for their catastrophic and continuing failures — regulatory, political, banking etc — are properly investigated from a wholly independent and unbiased standpoint and that the people responsible are held to account.
Moore made his call for a Leveson-style inquiry in the wake of the FSA’s recent “Final Report” into HBOS, which corroborates the explosive claims he made to the Treasury Select Committee in February 2009. As with the Leveson inquiry into the culture, practices and ethics of the British press, Moore believes that the inquiry should focus not just the banks themselves but also on the way in which they “corrupted” regulation, politics and the government.
Speaking at a Whistleblowing Conference organised by the Centre for Investigative Journalism in London’s City University on Thursday March 15th, Moore said the proposed inquiry should have powers to subpoena witnesses, including senior politicians such as Gordon Brown, and to question them under oath. Moore said:
“The banking crash was more than a financial disaster. We now know that it arose from the virtual hijacking by bankers of the political and regulatory process. As Jesse Norman MP put it “Lobbying is a canker on the body politic”. And it means we have never got to the bottom of what happened, who did what, hold people to account and reform the banking sector properly.”
Welcoming the FSA’s March 9th ‘Final Notice’ on HBOS and Bank of Scotland, Moore, said:
“This action and report by the FSA is long overdue. It vindicates the clear warnings I gave to the board of HBOS, under the chairmanship of Lord Stevenson, as long ago as 2004. Had the board heeded those warnings the bank could have been saved but, driven by their own greed and pride, the board chose to ignore them and dismiss me.
“It was Sir James Crosby, a friend and close confidant of Gordon Brown, who fired me and then went on to be appointed by Gordon Brown as the deputy chairman of the FSA even though the FSA knew he was running a highly risky bank. He, more than anyone else, was responsible for attempting to sweep my warnings under the carpet and when I gave my evidence to the Treasury Select Committee he was forced to resign from the FSA. He has not commented on the matter since.
“We now know that the FSA was hamstrung by conflicting objectives and by the presence on its board of conflicted people, like Crosby. We must now use the FSA’s report into HBOS as a lens through which to peer into the detailed inner workings of the banking elite that not only forced their way into the very organisations that were supposed to be regulating them, but also infected and affected Government and regulatory policy itself.
“That’s why it is vital that the former prime minister Gordon Brown and other politicians and regulators must be called to describe in full, the pressures they came under at the highest level.
“In the process of a proper public enquiry the full scale of the wrongdoing at HBOS (including the clear inference of non-disclosures on the Rights Issue and the Lloyds acquisition) will be properly exposed to the bright light of day and those responsible finally held to account. It is essential, in this and every respect, that the inquiry is held in public to inhibit the “behind closed doors” fixing that has become such a destructively systemic feature of British political life.
“For example, there are few people in this country who have held more of the reins of power than Lord Stevenson of Coddenham, the former chairman of HBOS. He is a personal friend of both Tony Blair and Gordon Brown. Such people are able to whisper in the ears of our leaders but the public nature of an enquiry would go a long way towards neutralising the secret powers of such people.
“Lord Stevenson has been chairman of Pearson, publishers of the Financial Times and a non-executive director of The Economist. He has been at the centre of establishment life as chairman of the Trustees of the Tate Gallery and the Aldeburgh Music Festival. He has been ‘kingmaker’ as chairman of the House of Lords Appointments Commission among many some 20 other influential appointments
Moore, whose full speech is available via a press release on the Moore Carter & Associates website, said he believes that whistleblowers who seek to expose wrongdoing and criminality inside banks and other organisations must be given greater protection. After his departure in December 2004, HBOS sought to undermine his legitimate concerns about HBOS’s disastrous business model by:
(a) Getting its auditors KPMG to produce a partisan and biassed report that sought to rubbish Moore
(b) Getting the FSA, where HBOS chief executive Sir James Crosby was also a director, to state it had no concerns about HBOS’s risk management practises and procedures!! (for BBC Newsnight economics editor Paul Mason’s take on Moore’s dismissal, read Idle Scrawl).
Speaking last Thursday, Moore added:
“The effectiveness of an open public inquiry into the banking crisis would be massively increased by proper protection for whistleblowers. I know from a lifetime either in or associated with the banking industry that most people who work in banking are good and decent people. They are angry that the industry they serve has been brought into disrepute by their bonus-driven leaders. These people know exactly what went on and are burning to lift the lid on practices that have disgusted them for many years but their duties to their families prohibit them from doing so.
“As I know to my cost, the penalties for taking a stand are dire; so, to encourage people to come forward, we need much better protection for whistleblowers.
“We should all also understand that the banking collapse was human as well as a financial disaster. According to the UN, the global banking crisis drove more than 100m people into poverty worldwide. Mortality and morbidity statistics relating to the effect of poverty indicate that it is likely that more than 10m people died as a result.
Last month FSA chairman Lord Turner acknowledged that the FSA is probably an inappropriate body to investigate the collapses of banks that it failed adequately to regulate, given its complicity in their failures. On January 30, Turner told the Treasury Select Committee that it may not bee too late launch a public inquiry or ‘Royal Commission’ into all of the UK’s bank failures, including those of RBS and HBOS, and including the regulators and other official bodies that sat idly by (or acted as cheerleaders) while they blew themselves up.
Turner told MPs: “You could argue that if we could all roll it back to 2009, we ought to have launched a Royal Commission, which would have looked at absolutely everything, including each of the banks that failed, all together rather than one by one, and at the role of all three authorities [Treasury, Bank of England and FSA]. I think there could be merit in that at some stage.
Tony Shearer, former chief executive of Kaupthing Singer & Friedlander, and the former Labour communications director Alistair Campbell are among the many who have already called for a public inquiry into the banking sector. Writing in his blog, Campbell said:
“I don’t know if extensive criminality was involved in the banking collapse, but what I do know is that a lot of people in a lot of organisations screwed up big time, and caused havoc in the financial systems and in the lives of millions of people.
“The consequences have been greater, and for more people, than the phonehacking scandal which has rightly led to an inquiry into the practices of the modern media. I was among many calling for such an inquiry long before David Cameron agreed to set it up. I expect that one day he will have to set up a banking inquiry too.
“The problem for politicians, bankers and regulators is that there has been no sense of closure on what happened. And there won’t be until there has been a proper reckoning. That means that all of the key players have to sit down in front of a powerful committee of inquiry, and be held to account. Such an inquiry might recommend the stripping of a knighthood or two; measures to deal with the out of control bonus culture; and ideas for new ways of running financial services.
“But more importantly, it could look at the whole picture – the role of politicians, regulators, credit ratings agencies, bankers, the lot. Unless it happens, and unless it leads to change. the public anger will not subside, the politicians will continue to respond to it in a piecemeal way, and we’ll end up learning next to nothing.
“So now that Gillian Tett is behind the idea, I hope to see the FT leader pages fill up with calls for such truth, reconciliation and forward plan to be examined in detail and in public. Banking largely got us into the mess. But it has a big role in getting us out of it. And it won’t be able to do so until that reckoning has happened.
“If there were to be such an inquiry it would have to explore all apects of the banking crisis. It would need to examine the roles of the Bank of England, the Financial Services Authority, the Treasury, and the UK government. It also needs to examine the roles of institutional investors, asset management firms and professional advisers — including the shocking failures of the ‘Big 4’ audit firms PWC, KPMG, Deloitte and Ernst & Young.”
It also needs to fully examine whether a combination of Basel II and IFRS accounting standards, both introduced in 2005, enabled UK and Irish banks to live in a fool’s paradise. The House of Lord economic affairs committee inquiry has already highlighted catastrophic flaws in the area but there is much work still to be done.
Both prime minister David Cameron and chancellor George Osborne made similar calls from the safety of opposition ahead of the May 2010 general election. On November 3rd, 2008 Osborne called for a full public inquiry into the banks, the regulators, and the politicians who set the regulatory approach. Osborne said:
“As Alistair Darling [then chancellor of the exchequer] has been forced to admit, ministers must bear responsibility for the failures in the system of banking regulation. We need a public inquiry that covers the behaviour of everyone responsible: the bankers, the regulators and, of course, the ministers, past and present. Because so much public money has been spent rescuing the banks, any inquiry must interview witnesses in public and one of the central witnesses must be the man who was Chancellor of the Exchequer for 10 years and presided over the age of irresponsibility: Gordon Brown.”
At Prime Minister’s Questions on November 5, 2008, Cameron repeated the call. He pressed Brown as to when the public inquiry might start, after which Brown sought to deny that City minister Lord Myners had ever wanted a public inquiry. [Source: Hansard 5 Nov. 2008, col.247].
Cameron said: “The facts are that we have the highest personal debt of any country in the world, one of the highest budget deficits in the world, and our regulation system has failed. In fact it failed so badly that the Prime Minister’s new Treasury Minister, Lord Myners, told the House of Lords this week that he wanted there to be a public inquiry into the regulatory failure. Can the Prime Minister tell us when we will have that public inquiry?
In a speech given at Reuters on December 15 2008 [video available here] Cameron called for a “day of reckoning” for the City, with tough punishments for those whose actions led to the financial crisis. He said:- “When I see working people paying through their taxes to bail out a banking industry which has imploded under the weight of its own irresponsibility, I believe we owe it to them to investigate thoroughly what exactly happened in this financial crisis, and to do all we can to stop it happening again …
“On behalf of the taxpayer …. I say it is fair and reasonable that those responsible are held to account for their behaviour.
“If anyone is found to have behaved criminally, they must be prosecuted. Are the [Labour] Government seriously saying that nothing untoward could have happened over here? How can anyone believe that in the worst financial crisis of our lifetime no proper and thorough investigation needs to happen?”
So my question to David Cameron and George Osborne is this: What has changed?