Bank industry hits back at committee criticism

The Commons Treasury committee has heaped further criticism on Britain's banks, but has been told by the sector to stop chasing headlines.

In a report issued on Friday, the MPs said that the companies were "principal authors of their own demise".

The committee highlighted an environment "rich in overconfidence, over-optimism and the stifling of contrary opinion".

"The culture within parts of British banking has increasingly been one of risk taking, leading to the meltdown that we have witnessed," added the report.

"However, this was a failure not only within individual banks but also of the supervisory system designed to protect the public from systemic risk."

Committee chairman John McFall said there had been "a comprehensive failure of the banking system at all levels".

"The banks have failed to govern themselves effectively: senior managers failed to understand the investments being made in their name; risk management and due diligence were seemingly ignored; and the non-executive directors, often eminent and hugely experienced individuals, failed in the proper scrutiny of the banks' activities," he added.

"Rewards for failure must not be repeated. We will address this and other aspects of regulation in forthcoming reports."

The committee supported the decision to implement a bank recapitalisation programme, but added that the unavoidable speed of implementation meant that the implications for both banks and government were neither fully understood nor worked out.

And noting that there are now "some positive signs" on bank lending, the MPs said they were "very concerned" about the availability and terms of credit to the small business sector.

Responding to the report, British Bankers' Association chief executive Angela Knight said the MPs had "sadly sought headlines in this report".

"The industry acknowledged some time ago that in some banks the risk controls were not good enough," she said.

"But many banks are in fact weathering this financial crisis and it is unfortunate the committee has not seen fit to recognise this.

"If we simply continue to blame the industry for all of the problems of the economy in the UK it will do little to help us out of the recession and will further damage the UK as an international financial centre."

However Liberal Democrat Treasury spokesman Vince Cable said the report was "disappointingly weak".

"It fails to meet the previous standards of tough criticism advanced by the select committee when interrogating the bankers," he said.

"The select committee has performed a good public service to date in its work on the banking crisis but this very limp set of recommendations does not meet the country’s needs."