DAVID Cameron's announcement yesterday of a parliamentary review of the banking sector, rather than the fully-fledged public inquiry being demanded by the Opposition, suggests that he has learned the lesson of Leveson.
Many may have relished the prospect of Barclays chief executive Bob Diamond being lightly grilled under the forensic questioning of an inquisitor such as Robert Jay QC, the star of the Leveson Inquiry. However, the Prime Minister is wise to opt for a more limited process focused on conflicts of interest, transparency, culture and professional standards in the UK banking industry. It will be less vulnerable to "mission creep" and more likely to inform the forthcoming Financial Services Bill and Banking Reform Bill.
To do that, chairman Andrew Tyrie must ensure that it does not descend into a petty party-political points-scoring exercise. Rather, it needs to gather evidence that can be used to beef up this legislation. That must include revisiting the issue of splitting investment from retail banking. The current scandal has nothing to do with the thousands of hard-working, modestly-paid bank employees who staff High Street branches and call centres.
Yesterday's tit-for-tat squabbling in the Commons between George Osborne and his shadow, Ed Balls, only went to show that both main parties were asleep on the job. Indeed, when Labour was weakening City regulation, the Tories were pressing them to go further. (Alex Salmond was also banging the drum for deregulation.) Now the priority must be to ignore special pleading from the City and instill some rigour and transparency into a sector where traders doing what they could get away with became more important than doing the right thing. A change of culture in banking must include a reassessment of pay and incentives in the sector that sucks in too many of our brightest graduates.
Meanwhile, Mr Diamond's position is surely untenable. Last year he said: "For me, the evidence of culture is how people behave when no-one is watching." Quite. As former head of Barclays Capital during the Libor scandal, he was either complicit or incompetent. Either way he should go. Whether or not he was aware of corrupt practices at Barclays, he was enriched by them via his large bonus pot. When a change of direction is required in a company, you need a change of boss.
Finally, malfeasance in banking will not cease unless such conduct carries serious consequences. Those who defraud the benefits system are prosecuted and punished, quite rightly. There will be justifiable public anger if those who lied and cheated escape justice. Under the 2006 Fraud Act it is an offence "to make false representations for professional gain" or "abuse a position of trust". It will baffle right-thinking people if the Serious Fraud Office cannot bring these people to justice. Or is there one law for the rich and another for the poor?
There is an irony here. For years, regulating the activities of bankers has been resisted on the basis that the brightest staff would leave. Yet if this manipulation had happened in the US, the perpetrators would be behind bars before you could say "brain drain".
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