LONDON Britain's banks must change their culture fundamentally after a string of scandals ranging from the "deceitful manipulation" of a key interest rate to "shoddy treatment of customers", Bank of England Governor Mervyn King said on Friday.
Britain's Barclays (BARC.L) found itself in the firing line this week after U.S. and British authorities fined it $450 million (287 million pounds) for manipulating the London interbank offer rate, and the scandal is now also expected to draw in other top banks.
The Libor revelations are the latest in a long line of events that have roused British public ire against bankers. Britons struggling with below-inflation pay rises in a shrinking economy have been infuriated by government-funded bailouts for banks that paid bonuses worth many times the average British salary, and by mis-selling of some insurance products.
King said problems ranged from "shoddy treatment of customers" to "deceitful manipulation of one of the most important interest rates" as well as excessive salaries.
"What I hope is that everyone now understands that something went very wrong with the UK banking industry and we need to put it right. ... We need a real change in the culture of the industry," he told reporters.
The Libor row, which left Barclays' American boss Bob Diamond fighting for his job, prompted politicians across the political spectrum to attack what many see as a culture of greed at a time when the government is struggling simultaneously to cut costs and revive the ailing economy.
It is also an awkward moment for Prime Minister David Cameron, accused by critics of being out of touch with the hardships of ordinary people, an image reinforced during an intense public inquiry into his government's cozy links to the media elite.
The financial industry, which employs around 1.4 million people in Britain, had been a major tax source before the financial crisis but the government had to bail out several big banks with tens of billions of pounds.
Earlier, the Financial Services Authority said it had settled with four banks - Barclays, RBS, HSBC (HSBA.L) and Lloyds (LLOY.L) - after finding evidence they mis-sold products to protect small businesses against a rise in interest rates.
"I think there are underlying questions about what the structure of the Libor market should be, and I think the time has now come to move it away from quotes, towards observations based on actual market transactions," King said.
"We don't need an inquiry to know what we should be doing," he added, when asked if Britain could set up a public inquiry into the matter modelled on its high-profile inquest into media ethics and standards.
The FSA said from 2001 to date, banks sold around 28,000 interest rate protection products to customers.
"I do think it is important on this issue of interest rate swaps to recognise that, correctly sold, and in many cases they were correctly sold, these can be good products," Adair Turner, chairman of the FSA.
"Sadly, our investigation so far has found that at the very least a significant minority were mis-sold and we are now going to put that right."
Speaking alongside King and Turner, Andrew Bailey, BoE executive director and head of the bank regulation unit, urged bank boards to be aware of potential dangers.
"If we see a fundamental breakdown of trust (in financial institutions) then the boards of these institutions have to recognise that trust has to be got back, and they have to think very hard about how this is to be done," he told reporters.