Darling warns banks to reform for good

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The Independent Online

Alistair Darling, the Chancellor, will today tell Britain's bank chiefs that the public will not tolerate a return to "business as usual" after the recession ends.

He will deliver his bluntest warning that banks will need in future to be transparent about their financial dealings if they are to regain the trust of savers and borrowers.

Speaking to the Financial Services Authority (FSA), he will say: "There has been a fundamental breakdown of trust in the global financial system.

"All of us - governments, regulators and importantly the industry itself - need to work together to rebuild that trust.

"That process will take time – there are no instant remedies or overnight solutions."Mr Darling will argue that the public accepted the case for the emergency bail-out of the banks to shore up the financial system.

But he will add: "People also know that we cannot return to business-as-usual. They want to see change. The banks too need to demonstrate to the public that they have learned lessons from recent events.

"Cleaning up the banks' balance sheets is an essential first step to rebuild confidence in the banking system. But in order to rebuild public trust we also need to reform banks' culture."

He will warn bank executives and their boards need to "recognise that their duty to shareholders is best fulfilled by acting in the interests of their customers and - not only some - but all of their employees."

Mr Darling yesterday sought to play down reports of a rift between him and Mervyn King, the Governor of the Bank of England, over the best tactics for combating the recession.

The Chancellor insisted Mr King fully agreed with last year's move to stimulate the economy with a £20 billion cash injection.

And in angry exchanges with the Conservatives in the Commons, he said that Mr King "would not rule out targeted and selective measures that helped people with unemployment - something you have turned yourself against".

But George Osborne, the shadow Chancellor, said Mr King's warning that the country could not afford another fiscal stimulus in next month's Budget was a "defining moment".

He said the Governor had humiliated Gordon Brown after he had "pulled the rug on the entire fiscal approach pursued by this Government".

Mr Darling also appeared to side-step a challenge over whether he had full confidence in the governor.

"I have made it clear on a number of occasions this morning that the difference is not between me or the Prime Minister and the Governor. The difference is between those of us who do and those of us who do not believe that we should be supporting our economy, jobs and increasing credit to businesses and individuals," he told a Tory MP.

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