The Parliamentary Commission on Banking Standards has called for a complete overhaul of banking culture in the wake of the Libor scandal.
In a detailed review of the sector, the Commission chaired by Andrew Tyrie slammed banks in week which saw UBS hit with a massive $1.5 billion for manipulating the Libor rate.
'Investigations into Libor have exposed a culture of culpable greed far removed from the interests of bank customers, corroding trust in the whole financial sector,' the report said.
While the Commission supported the proposals set out by Sir John Vickers to protect their retail arms by 'ringfencing' them, it believes the government should impose tougher measures to insure banks abide by the rules.
It said: 'The Commission welcomes the creation of a ringfence. It can, in principle, contribute to the government’s objectives of making the banking system more secure. It is essential that banks are restructured in a way that allows them to fail, whether inside or outside the ring-fence. Ringfencing can also help address the damage done to culture and standards in banking.'
'But the proposals, as they stand, fall well short of what is required. Over time, the ringfence will be tested and challenged by the banks. Politicians, too, could succumb to lobbying from banks and others, adding to pressure to put holes in the ringfence.'
For the ringfence to succeed, the Commission said banks need to be discouraged from 'gaming' the rules. 'All history tells us they will do this unless incentivised not to,' it said.
'That’s why we recommend electrification. The legislation needs to set out a reserve power for separation; the regulator needs to know he can use it.'
The Commission also recommended periodic reviews of the sector to ensure the ringfence is working.