It’s time for Labour to take on the banks

On Saturday, Ed Miliband took a stand against the banking industry, calling for a Leveson-style investigation into recent interest rate rigging and mis-selling scandals. Yesterday he forced David Cameron into another U-turn as he announced plans for a watered down parliamentary inquiry into banking. This morning he claimed another scalp as Barclays Chief Executive, Bob Diamond confirmed his resignation. It is tempting to claim this as a victory for Labour, but now is the time for Ed to hold firm; the only hope for real banking reform lies in a full public inquiry.

Last week we learned that Barclays were guilty of falsely submitting interest rates for personal and corporate gain. As someone who has been researching the banking sector for years (and as a former Goldman Sachs employee) even I was taken aback at the outright fraud that seems to have been widespread in a number of the big banks. It’s hard to exaggerate the impact on the wider economy of such grasping short-termism. Anyone who has taken out a student loan, mortgage, insurance policy or has money in a pension fund has potentially been affected by Barclays’ cynical, self-interested manipulation. And that was before we learned that Barclays and three of the other banks were embroiled in yet another mis-selling scandal, affecting thousands of small businesses.

Politicians might have been quick to condemn Bob Diamond this week, but such enthusiasm has been absent from post-2008 efforts to regulate the banking industry. The proposals of the Vickers’ Commission, adopted in watered-down form by the government are evidence of their inability to make the tough calls and withstand pressure from industry lobbyists. And, just like in the case of the Leveson inquiry, politicians have been too involved in the current system to reform it.

Labour has made mistakes on banking reform in the past. But we can put them right by seazing this opportunity to tackle the problems of the banking industry head on, from the culture of excess and short termism to the structural instability of the big banks and the conflicts of interest in the system. We need a banking system that is safe, useful and honest, that lends to small businesses, provides hard-working people with mortgages and drives productive economic activity.

Events last week have shown how far we still have to go. Ed Miliband has already shown he’s not afraid to take on some of the country’s most powerful vested interests in taking on Rupert Murdoch. Now it’s time for Labour to do the same with the banking industry.

Lydia Prieg is a finance researcher at the New Economics Foundation. She used to work on the trading floor at Goldman Sachs.