An independent review of the workings of the Libor inter-bank lending rate has been announced by the government in the wake of the Barclays fine.

Labour leader Ed Miliband has called for a public inquiry into the customs and practices of the banking industry.

Barclays was fined £290m ($450m) for attempting to manipulate the Libor and other banks are being investigated.

Barclays boss Bob Diamond has been summoned to appear before the Treasury Select committee on Wednesday.

Its chairman, Marcus Agius, will appear on Thursday.

Andrew Tyrie MP, the committee’s chairman, said the Mr Diamond’s hearing would focus on the Libor scandal, which he described as “the most damaging I can recall”.

“The public’s trust in banks has been even further eroded. Restoring the reputational damage must begin immediately,” Mr Tyrie added.

Chancellor George Osborne has confirmed that HSBC, RBS, Citigroup and UBS are also under investigation.

‘Corrupt elite’

The review, which will examine the future operation of Libor – the daily rate set by the British Bankers’ Association (BBA) – will be established next week and report by the end of summer.

It will ensure amendments can be made to the Financial Services Bill which is currently going through parliament. It will also examine whether to target institutions or individuals and whether to launch criminal prosecutions rather than impose fines.

Libor

London Inter Bank Offered Rate. The rate at which banks in London lend money to each other for the short-term in a particular currency. A new Libor rate is calculated every morning by financial data firm Thomson Reuters based on interest rates provided by members of the British Bankers Association.
 

Treasury minister Mark Hoban said: “What the public wants to see is a government that’s prepared to take action to resolve these problems and get on with it as a matter of urgency.”

Ministers are also considering a review into bankers’ professional standards.

Meanwhile, Mr Miliband has called for an inquiry after questioning whether Britain had “a corrupt elite that abuses its power”.

He told the Times there should be a banking code of conduct, with bankers “struck off if they do the wrong thing”.

“There has been no systematic look at the customs and practices of the banking industry. We’ve got to have an open, independent inquiry with hearings to find out what’s going on in the dark corners of the banks,” he said.

“Some of it was clearly illegal, but it goes well beyond that. There is a problem with how these people operate.”

He said what had happened at Barclays was “the worst example yet of abusive, predatory, short-termist take-what-you-can behaviour”.

‘Embedded in culture’

Mr Miliband said it was clear that change was required at Barclays and that it was “very hard to see that led by [current chief executive] Bob Diamond”.

Ministers have said new regulation is already in the pipeline with measures including the separation of bank investment and retail arms and a new regulatory structure.

The Labour leader, who is expected to address the issue in a speech to the Fabian Society Annual Conference later, said he hoped an inquiry would be set up with cross-party support and that he hoped for a new code of conduct which was about “probity, honesty, integrity”.

A widening gap between rich and poor meant there was “a sense of a certain section of the elite who have become so disconnected from other people that they are leading parallel lives”, he added.

Earlier this week, the Financial Services Authority and US Department of Justice fined Barclays £290m for trying to manipulate the Libor rate. There were also revelations that banks mis-sold specialist insurance.

The TUC and some Tory backbenchers have also called for a probe similar to the Leveson Inquiry, which is looking into the practices and ethics of the press, but the Treasury and the Bank of England have rejected the idea.

The TUC’s head of economic and social affairs, Nicola Smith, said a “continual stream of mis-selling and mis-investment products” suggested the UK banking culture was about “feathering their own nest”.

Bank of England Governor Sir Mervyn King said Britain’s banks needed a “real change in culture” but ruled out a wider inquiry.

PM David Cameron supported his comments, saying “concrete action” on accountability, regulation, transparency and behaviour was what was needed.

“You don’t change culture by changing laws and changing regulators alone, but I think if we can do this in a very clear and considered way then we have a chance of getting this right,” he said.

Former Conservative Chancellor Lord Lamont was among those to back calls for a Leveson-style inquiry.

Lord Lamont said the revelations of rate fixing strengthened the government’s case for dividing banks between investment and retail banking.

“You can’t have banks guaranteed by the government and gambling with money in the banks as well,” he said.

“I think the most important thing is to identify precisely who knew what, to find people and punish them.”

BBC

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