Leaders: Banking is bad soap opera that must be cleaned up

PLOTS in the banking scandal are thickening faster than in a nightly TV soap opera. Hours after Barclays chief executive Bob Diamond said he was not resigning following disclosure of his bank’s role in rigging Libor inter-bank interest rates, he did step down, apparently at the behest of the Financial Services Authority and the Bank of England.

Bloodied but unbowed, he then came out fighting as Barclays released a note made at the time of crucial phone calls between Mr Diamond and the Bank of England’s deputy governor, Paul Tucker, which seem to imply that Mr Tucker encouraged Barclays to reduce the Libor rates it was submitting.

The Bank maintains there was no such implication, but reasonable inferences also suggest there was political pressure from the then Labour government for interest rates to be massaged downwards. Did this come from then prime minister Gordon Brown, or his chancellor Alistair Darling, or other Treasury ministers?

Meanwhile in Scotland, the Crown Office has disclosed that the serious and organised crime division is investigating Scottish banks. The prime candidate for this probe has to be RBS, whose traders are already being investigated in America by the FBI and Canadian authorities for the role they may have played in fixing Libor rates.

RBS has already indicated that it thinks some of its traders fell short of required standards by firing four of them, and leaks suggest the bank is bracing itself to pay a £150 million fine. However, as the Crown Office has said this investigation has been underway for some time, it implies that the police may be looking at things other than the Libor scandal.

All this would be entertaining as soap opera if it were not so appalling. Scotland’s banks were once renowned for their prudence and probity. Sadly, that no longer applies. Banking’s utility in providing safe and reliable institutions to keep individuals’ and businesses’ money is as important to the functioning of society as is the supply of water and electricity. It is supposed to be about the supply of financial services to people and companies from which a reasonable profit can be earned.

But the impression now given is that too many bankers thought it was about the construction of elaborate and confusing schemes to scam money off people in order to earn unreasonable profits and bonuses. That is why the Crown Office is absolutely right to order a criminal investigation. Those responsible for this utterly disgraceful behaviour must be identified and brought to trial.

Inquiries have to go still further. Why did this incredible culture grow up in banking? Who fostered it? By what means was it furthered? And how can it be prevented? Huge damage has been done to the reputation of British and Scottish banking. Worse is almost certain to come. But the only course now is for there to be an Augean cleaning, painful though that will be.

Serious problem for Salmond

Thanks to questioning by Margaret Curran, shadow Scottish Secretary, we now known the Scottish government has not asked a single question of any Whitehall ministry about the relationships Scotland might have with them following independence.

Ms Curran says this shows the SNP have not done the most basic homework. A moment’s thought leads to the conclusion it is not altogether surprising. Any such debate would be tantamount to opening up independence negotiations and the SNP has no electoral mandate to begin such a process. The only mandate it has is to organise a referendum on independence and not, incidentally, on so-called devo-max or devo-plus.

Even if Scottish ministers did ask questions of Whitehall, the UK government would be almost certain to give no answers, first because of the lack of a mandate problem, and secondly because it believes that voters will reject independence. Nevertheless, Ms Curran’s questions reveal a serious problem for Alex Salmond. His government can only publish in its pre-referendum white paper what it believes it can achieve in negotiations. It can offer no certainty on the outcome of such talks.

As with all manifestos, what the Scottish government proposes will be subject to searching criticism, not just from political opponents, but from organisations and individuals whose future will be affected by independence, for good or bad. Judgements will be made on whether the SNP can believed or not, for certainty about future relationships between Scotland and the rest of the UK can only be delivered after negotiations. That makes it harder for the SNP to win the referendum.