Friday, 6 July 2012

Godsiff on Banking

LIBOR (FSA Investigation) Debate

2 July 2012 : Column 627

Mr Roger Godsiff (Birmingham, Hall Green) (Lab): After the nationwide disturbances last year, a student was given a six-month sentence for stealing a pack of water bottles. What punishment does the Chancellor believe would be appropriate for bankers who have stolen millions of pounds from investors through rigging interest rates?

Mr Osborne: I completely understand and sympathise with the sentiment that the hon. Gentleman is expressing: people suffer criminal penalties for offences involving much, much smaller sums of money—a fraction of the sums that we are talking about. The Serious Fraud Office, which is independent of the Government, is looking at the matter. Let us wait to hear what it has to say. It is looking at what laws are available to let it do that. I am sure that he would not want the Government of the day to undertake the criminal prosecutions themselves.

Professional Standards in the Banking Industry Debate

5 July 2012

Mr Roger Godsiff (Birmingham, Hall Green) (Lab): I strongly support the proposal for a judicial inquiry. I am sure that under the hon. Member for Chichester (Mr Tyrie) a parliamentary inquiry will do its best, but I think that for the reasons that have been advanced today there is a need for a judicial inquiry, because as the hon. Member for Dundee East (Stewart Hosie) and the right hon. Member for Haltemprice and Howden (Mr Davis) have said, this issue goes way beyond fiddling the LIBOR rate. This is a much bigger issue, and it is the bigger issue that needs to be addressed.

Whether the inquiry is parliamentary or judicial, I have concerns about the continual emphasis on the need to do something about the culture and standards of banking, because it implies that if we change the people at the top of banking we will change the behaviour. Would that were the case. I do not believe that it is. There are of course many people who work in banks who do an excellent job. They work very hard, they do not get paid a great deal of money or share in massive bonuses, and they are as disgusted as we are by what has gone on, but even if the most pious, puritanical person is put in charge of a den of inequity, they will eventually be corrupted.

5 July 2012 : Column 1147

That is what happens when someone is put on a trading floor, and I speak as somebody who worked in a bank. Many years ago I worked for Coutts, when it did what traditional retail banks did—what the hon. Member for Caithness, Sutherland and Easter Ross (John Thurso) described, and what the general public want. But if somebody is put on a trading floor and deals in obscure derivatives and other financial products, they will be either corrupted by what goes on, crushed by their peers or, if he or she is very brave, turned into a whistleblower.

Of course, there is a culture in banking that needs to be looked at—the culture of remuneration and bonuses. However, it is not just banking that has a culture whereby somebody who is paid to do a job, such as a nurse, teacher or bank clerk, and then expects to get a massive great bonus for doing it, irrespective of whether they do it well or badly. This is far removed from the lives of the general public because of the amounts of money being talked about. Bob Diamond has earned £100 million, and if he walks away the question is whether he will get £20 million. Twenty million pounds is way beyond what the vast majority of our constituents can expect to earn in a lifetime, even if we add in their pension pots, so we are talking about a surreal world as far as the wider public are concerned.

To be fair to the Business Secretary, he has said that the problem can be addressed through shareholder power. That is na├»ve, however, because the biggest shareholders of public companies are the institutions—and many of the people in those institutions sit on other boards, so it all becomes an incestuous circle. Different remuneration committees can consist of the same people. It all comes down to, “I’ll scratch your back if you scratch mine.”
If the Government were serious about making radical changes to the culture that I have just referred to, they could do worse than limit the number of directorships of publicly quoted companies that any one person can have. They could also change the rules so that the remuneration committees of all publicly quoted companies had a majority of small shareholders. That would really send shock waves across the institutions, but not the shareholders, who would welcome the opportunity.
Time is running out. We need to change not just the culture but the structure of banking. In 1986, the wild west came back—all the firewalls and protections put in place following the previous financial crisis in 1929 were swept away. We are all responsible in some part for that; we created the masters of the universe, who have not done us any favours. We have to go back to basics and reconstruct a banking system that is fit for purpose, serves the people and is not self-serving for a small minority.

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