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This latest bank crisis leaves several vital questions unanswered

Since the rigging of the key inter-bank lending rate (LIBOR) has been going on since 2005, why did it require the US Department of Justice to bring this enormous scam to light and why were the British authorities (FSA, Bank of England and Treasury) asleep at the wheel?Why were the top management of the banks so monumentally incompetent, or so wilfully blind, as not even to notice a clue in 7 years?

Why is the regulatory framework so pitifully weak that there are no long prison sentences in view, as there are in the US, as a severe deterrent against crippling financial malfeasance? All of these matters raise searching questions of accountability, the almost total lack of which is at the heart of this latest crisis.

Cable, who is the one member of the government with some moral principles, is calling on UK bank shareholders to ‘rise up and purge their companies of corrupt executives’. Fat chance: both institutional and individual (usually rich) shareholders are far too focused on rising profits and fattening dividends as well as too uninformed to take decisive strategic action against the top financial hierarchy.

But Cable, and many others, are seeing this crisis far too much in personal terms. Yes, Diamond’s position is untenable. The same cull is necessary in other banks too that are implicated – HSBC, RBS as well as foreign institutions such as Deutsche Bank. But removing rotten apples doesn’t get to the heart of the problem – the current structure of banking is bad and accountability virtually non-existent.

The banks are far too big (Britain’s Big Five control 95% of the money supply), they know that regulation is feeble, they also know that when things go wrong they can fall back into the arms of the State via the implicit taxpayer guarantee, and then as with all institutions with immense power and almost no constraints they abuse their power hideously and arrogantly.

The remedy is clear. The Big Five should be broken up into smaller specialist banks serving key, but neglected, areas of the national interest. Regulation should be significantly, but sensibly, tightened with the creation of a UK Securities and Exchange Commission , since the US version has been far more successful than any British model. The implicit taxpayer guarantee should be wholly removed from investment banking after complete separation of retail from investment (going further than Vickers’ ‘Chinese Walls’).

And serious deterrent penalties – meaning long prison sentences – should be put in place, again as in the US where Bernie Ebbers is now serving 25 years in prison for his part in defrauding investors over the collapse of the telecom giant WorldCom.

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