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October 5, 2012 / politicsbitesize

Have the banks met their match?

In a tough talking interview with the Independent this week, the new head of the Financial Conduct Authority (FCA), Martin Wheatley, warned the City of London that there was, ‘a big wake up call coming.’ He is being dubbed the new chief financial policeman and, by the sounds of things, he will be taking corrupt banks and bankers to task with a heavy hand.

Mr Wheatley has accused bankers of avoiding responsibility for misconduct by hiding behind committee management, by which he means decisions are often taken by a group of people and so it is hard to assign blame to any one individual for mistakes. He suggested that senior executives of banks may face US-style prosecution in the future and cautioned that, ‘if there are failures in the future we want individuals held to account.’ His tough message continued as he admitted that fining banks didn’t work because, ‘ultimately the shareholders pay and it gets written off.

The FCA, which will replace the Financial Services Authority, will be given the power to raid offices and bring criminal prosecutions against those found to be corrupt within the system. Mr Wheatley published his report into the London Interbank Offered Rate (Libor) scandal last week, which calls for a change to the way the interbank lending interest rates are fixed. It also recommends that those bankers who conspired to manipulate the Libor rate should face criminal prosecutions.

Banks, he said, had developed the ethos that, ‘you had to sell, you had to be earning by whatever means necessary.’ This attitude, Mr Wheatley went on to warn, needs to be stopped and he pledged to investigate potential abuses in many sectors of the financial system including the gold and silver markets, oil, foreign exchange and even agricultural commodities. He said, ‘we will shine a light into a number of dark corners and we will have to take action depending on what we find.

In a reflection of Mr Wheatley’s recommendations, Ed Miliband, at the Labour Party Conference this week, unveiled his party’s plans to break up the banks. He announced that a Labour government would confront the City of London’s ‘casino’ style banking by forcing the institutions to separate their investment and retail operations. In an attempt to reiterate his commitment to ‘responsible capitalism’, the leader of the Labour party claimed that if they won the next election one of their first acts in power would be to introduce a modern day version of the 1933 Glass-Steagall Act, which split up the commercial and investment sectors of American banks after the stock market crash of 1929.

To make the bankers face criminal prosecution is one way to satiate the public’s desire to see those who caused the collapse of economies across the world punished. Another way is to reintroduce the regulations that were stripped from the banking system decades ago and then break down the banking sector into manageable pieces. The other option, proposed by Unite the Union, is to fully nationalise banks that have already been bailed out by the taxpayer. This proposal would mean that banks such as RBS and the Lloyds/TSB group could be transformed into public investment banks and be required to invest in industry in order to aid growth.

Whatever way is chosen to remedy the problems caused by the banks, the fact remains that dealing with the consequences of the financial crisis is a huge challenge. It does look like a complete overhaul of the banking industry is on the horizon and, as Unite’s assistant general secretary Gail Cartmail says, it would be great, ‘to see a banking sector that serves the people and society, rather than a society that serves the banks.

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