LAW-MAKERS were "in
danger of getting lost in looking at the regulation and forgetting
what the regulation is trying to do", the Archbishop of Canterbury
told members of the House of Lords this week as they began detailed
scrutiny of the Financial Services (Banking Reform) Bill. It
was "a question of culture and ethics, not detailed rules", he
The chief executive of
Barclays, Bob Diamond, had told the Parliamentary Committee on
Banking Standards that "culture is what happens when no one is
looking," the Archbishop recalled.
"We know what happened
when no one was looking in the culture of some parts of the banking
industry," he commented. "They fixed LIBOR; over-geared and gamed
any system of regulation going. All of that was dealt with under
regulatory processes that did not work. They still fixed LIBOR,
gamed the system, and did all kinds of other things.
"The force of culture in
those institutions made it hard to challenge, and it is very
noticeable that over ten years, when this was going on at its
worst, the number of people who blew whistles on this was almost
zero. The culture made it very hard to discern that what you were
doing was not right."
He described the
"terrible cost" of the 2008 financial meltdown as a "catastrophe"
for "far-flung areas of deprivation and poverty", who "suffered
grievous blows of further damage from which they are still in the
process not even of looking for recovery.
"The damage when the
culture goes wrong is not localised. It is not just about the City:
it is about people far away, who know very little about what is
going on there, but find that they cannot raise money, that they
cannot do their business, and that their banking disappears
locally. The vast structures of reform that have been and are being
passed through Parliament, including this Bill, and that are
passing through the regulators and the industry, show that there is
a great failure of trust - and trust will be re-established not by
regulation but by culture."
He said that "there is no
doubt that we are seeing good things happen in the culture of a
number of banking institutions. . . A professional standards body
is being set up. I believe that this is not merely temporary
self-interest, but, in many cases, a deep sense that there needs to
be a change of culture and values."
He was supporting an
amendment from the former Chancellor Lord Lawson, providing for
greater sanctions for banks that breach new rules designed to keep
high-risk activities separate from a bank's core activities.
The Bill should not
"encourage behaviour that looks first to what is legal, as has
happened for a number of years, and never to ask the question,
'What is right?'" the Archbishop said.
The amendment was
withdrawn without a vote. The Bill has completed its passage in the
House of Commons, and will return to the Lords for a further
Committee Stage debate next Tuesday.