The House of Commons' powerful Treasury Select Committee is poised to quiz Barclays' Bob Diamond and other leading bankers in the coming months in a wide-ranging inquiry into the credit crisis.
Philip Dunne, a Conservative member of the committee and former investment banker, is writing to John McFall, the committee's chairman, saying it should call on all the major players in the market meltdown to call them to account.
As well as leading bankers from UK and international investment banks, Mr Dunne wants the committee to question the heads of the credit rating agencies and managers of major hedge funds who have invested in the credit products that have caused money markets to seize up. "I will be writing to the chairman of the committee to seek agreement for an addition to our work programme in the coming parliamentary session to include a review of the liquidity crisis in this year and of the participants who can shed light on it," Mr Dunne said. His proposal is likely to gain approval from his colleagues.
After bingeing for years on a frenzy of cheap credit, banks and investors are paralysed by fear after soaring defaults on US mortgages lent to risky customers infected the whole system after being parcelled up and sold around the world as bonds and derivative products. Banks have virtually stopped lending to each other because they are scared about where the toxic credit lies and are hoarding cash to make sure they have enough reserves.
The committee plans to question the Bank of England in two weeks and the Financial Services Authority in October about the causes of the crisis and how they are handling it.
Unlike central banks in Europe and the US, who have pumped money into the markets, the Bank of England has done little to intervene in the crisis. The Bank took limited steps to unblock the market for overnight lending on Wednesday but said the paralysed three-month lending market was not its responsibility. Mr Dunne said the Bank needed to explain why it had not injected liquidity into the money markets when banks had asked it to do so.
Barclays Capital, led by Mr Diamond, has been at the forefront of innovation in the credit products that have packaged up debt and sold the risk to investors. Royal Bank of Scotland is also a major player in the debt markets, and London hosts the European headquarters of Wall Street banks such as Goldman Sachs and Morgan Stanley.
Standard & Poor's and Moody's, the leading rating agencies, have come under fire because they gave top ratings to debt linked to sub-prime mortgages, whose value has since plunged. "The rating agencies' role needs to be looked at," Mr Dunne said.
Mr McFall could not be reached for comment.Reuse content