Jeremy Warner: Bankers make easy scapegoats, but...

Outlook Only MPs on the Commons Treasury Committee could make the quartet of bankers who appeared before them yesterday look like models of reasonable, intelligent and considered thinking. As public floggings go, it was all fair enough I guess, but the MPs failed to land a killer punch, and as Sir Fred Goodwin, former chief executive of Royal Bank of Scotland, said towards the end of the hearing: "You can blame it on me and close the book, but it doesn't come close to explaining what happened."

And though it was hard to figure out amid all the grandstanding, that indeed was the purpose of the hearing – to establish what happened and how it might be prevented in future. In fact, the great bulk of the three-and-a-quarter-hour marathon session was spent point-scoring. Was it individual bankers who were the cause, or were they as much victims of systemic and regulatory failure as everyone else? MPs wanted to pin it all on the bankers, but we were no nearer knowing the answer by the end of the hearing than we were at the start.

With public anger against bankers at fever pitch, we are in danger of falling for a big lie about the main causes of the financial meltdown. Greed, lack of governance and irresponsible risk-taking obviously played a major part, but none of it would have happened but for the climate of easy money, lax regulation and fiscal irresponsibility that fuelled the bubble. Policy mistakes in the early part of the crisis, when central bankers, regulators and governments failed to grasp the enormity of the dangers, may also have contributed to the collapse in confidence that did for the banking system.

No politician is ever going to accept that perhaps they were as culpable as the bankers. With their multimillion-pound bonuses, top bankers make easy scapegoats, and they deserve much of the opprobrium which is reserved for them. But it's not just greed and hubris; it's more complicated than that. Just occasionally during the hearing, you got little glimpses of the true picture. Unfortunately, they were few and far between, and there was virtually no time given to exploring with these disgraced representatives of their trade how things might be improved to stop it all happening again. Maybe they don't deserve their say, but it would have been interesting to hear it, none the less. There is not a single one of them who doesn't every night beat himself up for the mistakes that were made.

I don't want to apologise for Sir Fred and the others. They forgot the basic principles of sound banking in the dash for growth, but they weren't the only ones who thought heavy reliance on wholesale funding perfectly safe, or failed to anticipate the way in which it would break down. The Financial Services Authority and the Bank of England also failed to notice what one MP repeatedly and mistakenly insisted on calling the "siren warnings". That's because, beyond the odd diatribe about the dangers of excessive debt, there were hardly any of them. It suited the politicians as much as the bankers for the party to be maintained at full pelt. You are not going to get politicians taking the punch bowl away just when there is an election looming.

I say there were no "siren" warnings, but in fact there does appear to have been one. The former head of regulatory risk at HBOS, Paul Moore, claims in a memo to the committee to have warned repeatedly against the dangers of overly aggressive expansion of the balance sheet. Eventually, he was sacked and gagged for his trouble. The finance director, moreover, refused to minute his complaints. Mr Moore likens his experience to that of a man in a rowing boat trying to slow down a supertanker.

Mr Moore's insider account puts the blame firmly on a "total failureon all key aspects of governance". No doubt there is some truth in his claims, but the nub of his complaint is not what ultimately did for HBOS. It was not overly aggressive lending as such which sank the bank, but undue reliance on wholesale funding. Even Mr Moore failed to spot quite how vulnerable this was making the banking system.