David Cameron Announces Banking Industry Inquiry

Prime Minister David Cameron has announced a parliamentary review of the banking sector in the wake of the Barclays inter-bank lending furore.

He told the House of Commons that the manipulation of the Libor interest rates had been a "scandal".

The comments follow news that the Serious Fraud Office is considering whether to bring criminal charges.

Barclays has announced a "root and branch review" after receiving a fine of £290m ($450m) over the Libor affair.

Mr Cameron said the full parliamentary committee of inquiry would be headed by the chairman of the Treasury Committee, Andrew Tyrie.

"This committee will be able to take evidence under oath, it will have full access to papers and officials and ministers including ministers and special advisers from the last government," he said.

Mr Cameron said the review should ensure that the UK had the "toughest and most transparent rules of any major financial sector".

He added: "Bankers who have acted improperly should be punished," and it was important to learn the lessons of the affair.

But Labour leader Ed Miliband said the review did not go far enough, calling instead for an inquiry which was independent of bankers and politicians.

"I'm not convinced by his way forward because I do not believe it measures up to the scale of what is required," he said.

The inquiry comes after a series of issues that have undermined public confidence in the financial sector, including the mis-selling of billions of pounds worth of payment protection insurance, and the mis-selling of a complex hedging insurance designed to protect small firms against rises in interest rates.

Later on Monday, Chancellor of the Exchequer George Osborne told the Commons that there needed to be urgent changes to the regulation of the Libor market.

An inquiry specifically about Libor will look at conflicts of interests, and the culture and standards of the banking industry.

The inquiry will be able to call witnesses under oath, and is expected to report its findings by the end of 2012, Mr Osborne said.

The Banking Bill would be amended to reflect the inquiry's recommendations, he added.

Prosecution

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Nick Robinson

Political editor

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It will be separate from, and much wider than, the inquiry already announced into the abuses of LIBOR - inter-bank lending rate - at Barclays and other banks.”

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The SFO said it was working closely with the Financial Services Authority and was now "considering whether it is both appropriate and possible to bring criminal prosecutions".

Meanwhile Barclays' chief executive Bob Diamond said in a letter to staff that he would "get to the bottom" of what happened and resolve it.

"We are being thorough and robust while also ensuring that we undertake due process.

"We are reviewing those directly responsible and those in supervisory roles. We have the full range of tools at our disposal, from clawing back compensation to asking people to leave the bank," he said.

Marcus Agius earlier confirmed his resignation as chairman of Barclays over the scandal, saying: "the buck stops with me".

Mr Miliband said earlier on Monday that Mr Diamond, who was head of Barclays investment bank BarCap during the crucial period, should resign.

The Labour leader said it was important to restore trust in British banks. "I really don't think that can be done by Bob Diamond," he said.

Deputy Prime Minister Nick Clegg told the BBC: "We need people in [banking] who take responsibility when things go wrong, not just take the big bucks when things go right."

Former Barclays director Baroness Wheatcroft told BBC News that Mr Agius was currently "carrying the can" but said Mr Diamond's resignation was now "inevitable".

Blow to reputation

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We all know that these events are not representative of our culture, and it is my responsibility to get to the bottom of that and resolve it”

Bob Diamond

Barclays chief executive in a letter to staff

Barclays' letter in full

Mr Diamond will appear before MPs on the Treasury Committee on Wednesday, followed by Mr Agius on Thursday.

Mr Agius has also stepped down as chairman of the British Bankers' Association, which is responsible for compiling Libor.

Mr Agius, who also serves on the BBC's executive board, said last week's events were evidence of "unacceptable standards of behaviour within the bank".

He said the findings had "dealt a devastating blow" to Barclays' reputation.

Barclays' board has launched an audit of its business practices, which will be conducted by an independent body and report to the new deputy chairman, Sir Michael Rake.

The bank promised:

a "root and branch review" of its "flawed" past practices

a public report of the audit's findings

a new mandatory code of conduct for all staff

Barclays will establish a "zero tolerance policy" to anything that damages its reputation, the bank said in the statement.

Sir Michael Rake, BT chairman and senior independent director at Barclays, has been appointed deputy chairman at the bank. He is seen as a likely successor to Mr Agius.

Mr Agius will stay on as chairman while Sir John Sunderland, a non-executive director of Barclays, looks for his replacement.

Different culture

Barclays was fined after the Financial Services Authority (FSA) found its traders had lied about the interest rates other banks were charging it for loans. Investigations are also under way at RBS, HSBC, Citigroup and UBS.

Giving a lower reading than the true rate would give the impression that Barclays was considered a better lending risk than it actually was.

Reporting a higher reading than the real rate could have inflated trading profits artificially, misleading investors and regulators.

The FSA found evidence that Barclays, sometimes working with staff at other banks, had tried to manipulate Libor (the London Inter-Bank Offered Rate) and its European equivalent Euribor between 2005 and 2009.