It is now six months since the LIBOR scandal erupted - and we are still trying to assess how much damage that and other scandals have done to public trust in the banks. There is a widespread belief that the passing of the Banking Reform Bill and the report of the Parliamentary Committee on Banking Standards will draw a line under LIBOR and other problems, a belief compounded by the fact that our national debate about the banks has to date been limited to a highly technical discussion of how to create a banking resolution system that protects the public purse from a systemic collapse.
But banking professionals know that trust is not so easily restored. I was recently at a meeting of bank board chairs where a general consensus was expressed that it would take twenty years for the public to regain confidence in the integrity of our system. They recognise that the social contract with finance has broken down. Those same chair people added that they cannot restore trust and confidence alone. Even after the memory of the crash and the scandals has faded, and the banks have proved they can respect regulation, these institutions will need help to earn back the faith and goodwill they have squandered. It will be a long time before we feel as a nation that we can bank on the banks.
Yet we should be under no illusions that public confidence in the banking system is integral to our economic success and security. Depositors need to feel certain about the integrity of our financial institutions. So do investors and markets. Furthermore, our ambition to "re-balance" the UK economy requires us to have a healthy and vibrant finance sector, trusted by business and consumers. We have to debate finance because finance is pivotal to our future as a nation.
It is also pivotal to our success as a global player, however. The change in the world economy over the next decade will be enormous. But British businesses will only be able to grasp the opportunities presented by an unprecedented growth in the world economy - the likely doubling of the world economy predicted by Jim O Neill of Goldman Sachs, and others - if British finance is there to sustain the efforts of British companies. We need a financial sector that works in partnership with British businesses to help them take advantage of growing global markets.
Trust in Britain's financial institutions must be restored for the sake of the investors, corporations and countries that are the clients of Britain's broad business services, not just banking, but everything from consultancy to insurance, legal services and audit, reflecting the fact that both British firms and international firms base themselves here. At present, the service sector is one of the UK's greatest assets. It is hugely competitive on the international stage. In 2010 it generated a trade surplus of £40billion - much more than any other sector. Such success is unique amongst our international peers, where the contribution of financial services to net exports is negligible. As the 'growth - 8' markets expand, we will continue to attract their business services only if Britain is seen as the safest and most trusted global financial centre.
Debate is the key to regaining trust: informed discussion by the banking industry, financial professionals at all levels, Parliament, the media and others. This is why an all party group of parliamentarians has taken the step of setting up a think-tank which can begin this necessary process. And we will be starting this debate by asking: what is finance for? We must uncover the mistakes that led to finance flowing in the wrong direction in the last decade. We can expect to uncover some difficult answers. Looking forward, we need to establish what role we want finance to play in our economic life in the 21st century. Restoring the social contract between finance and the nation requires that financial institutions return to providing both the lending and the investment capital essential for economic growth. They must fulfil their social obligation to society and the wider economy. Everyone is clear what the balanced economy which we are trying to achieve looks like: housing that is affordable; more 'gazelle'-like SMEs financed by more venture capital funds; up to date infrastructure; and an international financial and professional services sector that is both world class, and the correct size versus the rest of the UK economy.
There are hard questions to be answered before we can achieve that vision: we must work to restore the reputation of our banks around the world, decide how much power we give them, establish what their primary functions are in respect of rebalancing our economy, in relation to British businesses and consumers and their role in world markets. The questions are hard but the debate is absolutely essential to our future.
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