By David Milliken and Huw Jones
LONDON, June 29 (Reuters) - Bank of England Governor Mervyn King launched an angry attack on British banking culture on Friday, saying something had gone very wrong with an industry which he derided for resorting to “deceitful” methods to make money.
King, the country’s most powerful monetary official, said a a fundamental overhaul was needed for a sector that is reeling from a string of financial scandals.
The banking industry is one of the largest cogs in Britain’s economy and has thrived over the past decades in a climate free market laissez-faire.
Protecting it has often caused major clashes between Britain and it European Union partners.
Britain’s Barclays, a major international player, found itself in the firing line this week after U.S. and British authorities fined it $450 million for manipulating the rate at which banks lend to each other overnight. More banks are expected to be drawn in.
The row has angered voters and prompted politicians across the political spectrum to attack what many see as a culture of greed in a country struggling to revive the shrinking economy.
Speaking after a week of stinging revelations, King said problems ranged from “shoddy treatment of customers” to “deceitful manipulation of one of the most important interest rates”, as well as excessive salaries.
“What I hope is that everyone now understands that something went very wrong with the UK banking industry and we need to put it right. ... We need a real change in the culture of the industry,” he said in a news conference presenting the central bank’s financial stability report.
It is an awkward moment for Prime Minister David Cameron, accused by critics of being out of touch with the hardships of ordinary people - an image reinforced during an intense public inquiry into his government’s cozy links to the media elite.
Some politicians called on the government to set up a similar inquiry -- or investigation -- into banks as the row engulfing the financial community threatened to spill over into a wider political scene.
Britain’s Financial Services Authority said it had settled with four banks - Barclays, RBS, HSBC and Lloyds - after finding evidence they mis-sold products to protect small businesses against a rise in interest rates.
Under pressure to act decisively, Cameron said those breaking the rules of corporate responsibility must “face the consequences” but made no policy proposals.
“I think we know what needs to be done. The most important thing people want to see is a really concrete set of actions that will help change the culture,” he said in Brussels.
“People want to see real accountability for what has happened. Where people have broken the rules they should face the consequences.”
The overnight lending -- or Libor -- revelations left Barclays’ American boss Bob Diamond fighting for his job, but are only the latest in a long line of events that have roused British public ire against bankers.
Britons are already struggling with below-inflation pay rises have been infuriated by government-funded bailouts for banks that paid bonuses worth many times the average British salary, and by mis-selling of some insurance products.
Several members of parliament called for a public inquiry - a risky step for a government already under fire after a barrage of excruciating relevations made in a year of public hearings following last year’s phone-hacking scandal.
Asked whether he was in favour of the move, Business Secretary Vince Cable said he did not have “strong objections”.
“The priority is surely to take action in the areas where we know there’s a problem,” he said. King had earlier said he did not think an inquiry was necessary.
The financial industry, which employs around 1.4 million people in Britain, had been a major tax source before the financial crisis but the government had to bail out several big banks with tens of billions of pounds.
Speaking alongside King and Turner, Andrew Bailey, BoE executive director and head of the bank regulation unit, urged bank boards to be aware of potential dangers.
“If we see a fundamental breakdown of trust (in financial institutions) then the boards of these institutions have to recognise that trust has to be got back, and they have to think very hard about how this is to be done,” he told reporters.