It is a pleasure to be here at the Co-op.
You have always understood that ethics of responsibility, co-operation and stewardship must be at the heart of what you do.
That’s one of the reasons why the Co-Op bank has in the last week seen a 25% rise in applications for accounts.
It was your values that I was talking about last September when I said to the Labour Party conference that Britain needed a different kind of economy.
An economy based not on the short-term, fast buck, take what you can.
But on long-termism, patient investment, and responsibility shared by all.
Not an economy based on predatory behaviour.
But productive behaviour.
Not an economy that works just for a powerful, privileged few
But an economy that works for all working people.
To make this happen, I said we needed to challenge how we have been doing things for decades.
Some people said my speech was anti-business.
Or didn’t understand what I meant by predatory capitalism.
Sadly, after the recent revelations nobody can be in any doubt what I was talking about.
And nobody can really believe that the current way of running things is in the interests of British business.
The revelations of the last two weeks have shown precisely what has gone wrong in our economy in the last decades.
The rules of our economy were too frequently based on the idea that if government got out of the way and we followed the path of deregulation, we would create an economy that worked for all working people.
In too many ways and in too many places, it hasn’t worked.
And the test for all of us is whether we can learn that lesson.
And that starts with our banks.
The words that will live with me from the last two weeks are not words spoken in the House of Commons.
Or the words of Bob Diamond.
They were the words I heard last Thursday when I visited Alan Henderson.
Alan, his wife Margaret and his daughter, Julie, run a sign-making company in Putney.
Julie Henderson told me the chilling words spoken to her when the Hendersons were completing their loan agreement four years ago with one of the big high street banks.
“Are you ready to trade?” asked her broker.
Because she didn’t say no, she ended up not just with a five year loan from the bank but what they call an interest-rate dual amortising swap product, for ten years.
They didn’t know it but by the end of that phone call, they had taken a trip to the financial bookies.
And placed a bet they didn’t want.
With hundreds of thousands of pounds they didn’t have on what would happen to interest rates.
Without proper information.
And without realising the consequences that it could have for them.
The Hendersons look back on that moment as the beginning of a four year nightmare which has undermined the family business and still does today.
It led to them laying off workers in their firm.
And it brought their business to the brink.
They also told me about harassment and bullying by the people who work for their bank, inappropriately called “relationship managers”.
They’ve had six of them in four years.
What makes this story all the more upsetting for Alan Henderson was that this was the same bank that he first opened an account with in 1972.
When he went to see his local bank back then, there was a local branch manager who wanted to help.
Who was in it for the long-term.
Who knew his business.
And who got to know Alan.
In this story, we can understand almost everything that has gone wrong with British banking over the last two decades.
It is a story repeated across the country.
Mis-selling of products to small business.
Failure to lend.
Fleecing of ordinary customers, such as in the payment protection scandal.
And all of us paying the price of what the banks did in the financial crisis in lost jobs and all the other consequences.
What the Hendersons and the rest of the country have endured is what I would call the shift from stewardship banking to casino banking.
Moving from a culture when banks cared about the local business and had an interest in its success
To a culture too often driven by short-term gain, fancy financial products and the bank not caring about the success of the firm, just about the immediate return.
Because Julie Henderson did not resist the invitation to “trade”, the bank in question made money from selling the Hendersons’ bet on the financial markets to somebody else.
Some people have asked whether this casino banking is socially useless.
The reality is that it has been economically damaging.
And socially destructive.
None of this reflects what the British people expect of our banking sector.
It doesn’t reflect either the decent values of the majority of people who work in our banking system.
Today I am going to describe how we can start to build a better banking system.
How we move from the Casino banking we have to the Stewardship banking we need.
What does Stewardship banking look like?
It is about a banking system that recognises not just that it is an industry that serves itself but that it also has a fundamental and higher responsibility to serve the real economy.
We need a banking system where bankers are not given an incentive to focus on the short-term return.
But to build a long-term, trusted relationship with their customer.
A banking system where no one bank feels either too big to fail or too powerful to be challenged.
But where all banks face real competition and customers have proper choices.
Where the term banker goes back to being a compliment rather than a term of abuse.
A banking system which the British people can have confidence in once again.
There are those who say that casino-style high risks and high rewards are an intrinsic part of what keeps the City of London globally competitive.
Of course the City must be competitive.
But we must make sure the rest of the country prospers too.
That means we need a banking system which serves every region, every sector, every business, and every family in this country.
With rules that should not just work for one Square Mile, in the City of London.
But work for the other 94,000 other square miles of this country as well.
We want banks to serve the country, not a country that serves its banks.
How do we create such a system?
How do we rebuild Stewardship banking in this country?
The banking institutions we have shape the behaviour of many of the people who work in them.
Over the course of the last twenty years, we have seen the ethic of our banks change because the institutions that make up our banking industry changed.
We can all remember when there were many banks to choose from in this country.
And different building societies in every major town.
We saw them on our high streets and we understood what they did.
They looked after our savings, offered us mortgages and supported local businesses.
Since the 1980s, two hundred building societies have been lost.
There are only five major banks in this country.
And their business is often more focused on their investments in the global financial markets than it is on their local customers.
We can’t simply turn the clock back.
But the Vickers Report was right to insist that there should be a clear separation between the high street and investment parts of our banks.
Stewardship banking means returning to a situation where your local retail bank sells simple low-risk products.
That would have protected the Hendersons from being mis-sold products that made money for traders rather than served their interests.
The Government was right to set up the Vickers commission.
Unfortunately, it is now watering down its recommendations.
It plans to allow high street banks to continue selling products like those sold to the Hendersons.
This is wrong.
And they must change their mind.
John Vickers also called for more competition in the market.
The largest four banks have 85% of the current accounts of business in our country.
There isn’t proper competition in our banking system.
Companies that think consumers have no choice are more likely to behave in predatory ways.
We saw that with News International, we see it with our banks.
If we want a productive financial sector we should break up our big banks.
We need to take excessive power away from the banks so that they serve the interests of the consumer once again.
That means better competition.
We should bring forward the competition review.
And we should break the dominance of the big five banks.
Let’s turn five into at least seven so there is proper choice for the consumer.
The quickest way to do that is to force existing banks to sell off hundreds more branches.
With new banks appearing on high streets right across the country.
And we should have a thriving mutual sector once again.
But building Stewardship banking is not just about competition on the high street.
For too long we have assumed that everyone who needs access to a bank can get it.
But they can’t.
Some of the most deprived areas of the country are currently almost entirely excluded from banking services.
We can only fix this when we know what is going on.
When we have proper information.
In the 1970s, the US government passed a law forcing the banks to publish details of the areas in the country to which they weren’t lending.
That paved the way for radical action on community financing.
Some banks in the UK already hold this information.
We should collect and publish it.
So that the parts of our country not currently being served by our banks are no longer ignored.
And it’s not just about individuals who can’t access bank accounts.
It’s about small businesses locked out of loans.
For too long, governments of all parties believed that credit would always flow to the right places.
That banks would look after our businesses.
That was wrong.
Take lending to manufacturers.
Last March, out of all the business loans in the country, the amount that went to manufacturers was just 2.5%.
Three quarters of all the loans to business went to finance and property firms.
And this is after the crash.
All around the country there are men and women who are not getting the credit they need to grow their businesses.
Partly because it’s always cheaper for banks to lend to big companies than small ones.
We don’t believe the banks we already have will be equal to the task of lending enough to small businesses.
That’s why we believe there is a case for a British Investment Bank.
Government recognising its role to guarantee lending to small business to provide the long-term finance it needs.
It was a similar institution in the United States which gave a young entrepreneur a loan in the early eighties when nobody else understood his sector.
His name was Steve Jobs.
And he founded Apple.
Every other major country understands that government needs to act to tackle this problem of financing.
It’s time that British business stopped having to compete with one hand tied behind its back.
So as part of our Policy Review, today we are publishing analysis by Nick Tott to set out that case for a British Investment Bank.
His analysis shows such a bank could be a key institution in reshaping the banking sector in our country.
These steps – full implementation of Vickers, proper competition on our high street, openness about who our banks fail to serve and a British Investment Bank – are part of what we need for the root-and-branch reform of banking.
Building stewardship banking for Britain.
But it’s not just about the institutions we have.
It’s about the values we have come to accept.
The messages that we send about what is right and what is wrong.
That’s why we need a new code of conduct for bankers.
Stewardship banking relies on the idea that banking is a trusted profession.
Not a fly-by-night activity.
If we’re serious about banking regaining the status of teaching, medicine, law, we have to act.
Those professions have clear rules.
Codes of conduct which lay down what is expected.
We need the same for banking.
Anyone who breaks the rules should be struck off.
The people who mis-sold to the Hendersons didn’t behave like professionals.
They were predators.
They should never be allowed to work in British banking again.
Sometimes even striking people off is not enough.
There is breach of professional conduct and then there is something else - crime.
But at the moment Britain doesn’t do enough to prosecute white collar crime.
We all think people who shoplift should face the consequences.
But nobody really believes today that the same law applies to those who swindle millions on the financial markets.
The Serious Fraud Office has powers to prosecute under the Criminal Justice Act and the Bribery Act.
We don’t just need cultural change in our banks, we need cultural change in the seriousness with which the authorities take financial crime.
The total fine Barclays paid for the LIBOR scandal, while small for Barclays, could pay for the entire budget for the whole of the Serious Fraud Office for ten years.
Let’s put some of that money paid in fines to good use.
We should set up a ‘Financial Crime Unit’ within the Serious Fraud Office to investigate serious financial services fraud like the LIBOR scandal.
Never again should there be a suspicion that the Serious Fraud Office is not sufficiently funded to take action.
Given the slow response of the Serious Fraud office over the last year, we need decisive action now, so that no-one can say Britain is a soft touch for the prosecution of financial crime.
So we need to strike off those whose conduct lets this country down and prosecute those who break the law.
There also needs to be a deeper change in culture.
Nowhere does this apply more than in bonuses and pay.
People taking home in a week what other people earn in a lifetime.
Where is that money coming from?
Some of it from people like the Hendersons.
We have a bonus culture in our banks that rewards short-term transactions not long-term wealth creation.
And the rewards can be so vast that all the incentives are to take what you can as quickly as possible.
And nobody really believes that this has properly changed since the financial crisis.
We should ask, the banks should ask whether £120 million made over five years by Bob Diamond is right under any circumstances.
He wasn’t taking risks with his own money.
He was taking it with other people’s.
So how do we change this culture?
It starts within the bank itself.
We should have an ordinary bank employee on every remuneration committee.
If you can’t look an ordinary bank cashier in the eye and justify your bonus, you shouldn’t be getting it.
If you own a share in a bank which is spending millions on executives independent of their success, you shouldn’t just be able to protest, you should be able to stop it.
That means annual binding and transparent votes on pay policy at the top.
Something the Government is refusing to do.
The European Parliament is proposing that if your bonus is doubling your annual salary, it should be enough.
This would cap the level of bonuses.
But George Osborne is going to Brussels on Tuesday, lobbying against such proposals.
Instead of trying to stop action, he should be engaging positively with these proposals.
And I believe we should continue to have a special tax on bank bonuses to get our young people back to work.
As a country, we succeed or fail together.
These actions on code of conduct, criminal penalty, and bonuses go far further than the Government.
But even all this might not be enough to change our banks.
That’s why Ed Balls and I have been making the case for a thorough, forensic, judge-led inquiry.
To get to the bottom of what has gone wrong with our banks and put it right.
Despite the laudable aims of the chair of the Treasury Select Committee, its focus is just on the Libor scandal.
We need to go further.
To ask all the hard questions.
To find out what has happened to small businesses.
And how we can resolve all the other problems of culture that beset our banking industry.
Implementing the Vickers recommendations in full is our starting point.
It is right for dealing with the issues of risk and banks that are too big to fail.
That is why we supported it.
However, part of the reason why we wanted a full public inquiry is to enable us to address the deeper cultural challenges the industry faces.
How we genuinely change the way our banks work, and make them focus on stewardship once again.
This inquiry would enable us to address whether we need to go further.
In the absence of that inquiry, we will continue to do our own work developing our response to this crisis.
There are those who say that Labour should take its share of responsibility for what happened in the past.
They are right. Like other governments and central banks across the world, our regulation wasn’t tough enough.
We did strengthen regulation from what had gone before but not enough.
But the difference between us and the Tories is this:
We have learned the lessons.
The Conservative-led Government won’t bring the change we need.
They have failed to rise to the challenge of reforming our banks again and again.
Watering-down the separation between high-street banking and casino banking.
Going slow on new competition in banking.
George Osborne heading to Europe this week to argue against action on bonuses.
Refusing a bank bonus tax.
And a judge-led inquiry.
Once again showing they are out of touch with where the public are.
And most of all, they can’t be the people who deliver tougher regulation because light-touch regulation is what they believe in their bones.
Only those that understand the role of government can bring the change we need.
Our goal is clear.
To build Stewardship banking again in this country.
Separating retail and investment banking.
More alternatives for the consumer on the high street.
And a British Investment Bank to help our small businesses.
A new culture which stops the bonus-as-usual, sell-what-you-can, short term system that ruined the Hendersons.
To build banks that serve the people, not just themselves.
Banks which are safe, so that the taxpayer never has to reach into their pocket to bail out one of the richest sectors of the economy ever again.
And most of all, banks which reflect the values of the British people:
Reward linked to effort.
At its heart, this is about making banks serve the everyday dreams and ambitions of the British people.
Everyone who dreams of buying a house and needs a mortgage.
Everyone who dreams of starting a business and needs a loan.
Everyone who wants to put money aside for the future.
This is about building a more responsible banking system to serve a more responsible capitalism.
So that the British people have banks they can trust once again
Banks that can help us rebuild our country.
And rebuild an economy that works for working people.