UK Politics

Banks becoming an embarrassment, says Nick Clegg

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Media captionNick Clegg told CBBC's Newsround that banks are "a source of shame"

The banking sector has become a "source of embarrassment", Nick Clegg has said, as the government launches an inquiry into the industry.

The deputy prime minister added that the system had gone "horribly, horribly wrong" and needed reform.

The government is promising a committee of peers and MPs will look at banking, with a view to changing the law.

But Labour said this was not enough and urged the setting up of a full public inquiry to "re-establish trust".

The House of Commons exchanges came as politicians dealt with revelations that staff at Barclays had attempted to manipulate the key inter-bank lending rate known as Libor.

Barclays has already been fined £290m and the Crown Prosecution Service could press charges against some of its staff.

'Navel-gazing'

The committee's remit will be to examine issues of "transparency, conflicts of interest and the culture and professional standards of the financial services industry including the interaction with the criminal law".

It will be chaired by Conservative MP Andrew Tyrie, the chairman of the Commons Treasury Select Committee.

The Barclays revelations follow months of complaints that, more generally, bonuses in the financial sector are outstretching performances.

Speaking on CBBC's Newsround, a news programme for children, Mr Clegg said: "The banks used to be the jewel in the crown of our country and now they're a source of embarrassment and shame. And I think people need to take responsibility for the things that went wrong because they went horribly, horribly wrong."

With Barclays' chief executive Bob Diamond under pressure to follow the bank's chairman, Martin Agius, and resign, Mr Clegg added that "the buck stops at the top".

Chancellor George Osborne told MPs about the plans for an inquiry, saying: "We need to get on with this right now, rather than spend years navel-gazing."

'Re-establish trust'

The committee's proposals could be included in the government's Banking Reform Bill, to be debated at the end of this year, which would separate banks' investment and retail operations.

Mr Osborne added that a full public inquiry would be too costly and time-consuming, arguing that the committee of peers and MPs would have "enough time to do the job and do it well, but not so long that it drags on for years".

But Labour leader Ed Miliband urged a full public inquiry in the style of that being carried out into media standards by former judge Lord Leveson.

He called for an investigation "independent of bankers and independent of politicians".

"That's the only way we can re-establish trust in banking and the financial services," Miliband said.

However, Mr Tyrie promised a thorough, independent investigation, saying: "I would not countenance a compromised inquiry and I would not be prepared to chair one either."

Mr Diamond will appear before MPs on the Treasury Committee on Wednesday, followed by Mr Agius on Thursday.