BISHOP AUCKLAND, U.K.—The beleaguered British banking industry has faced angry politicians, regulators and consumers. This fall, a new player has joined the inquisition: a bespectacled bishop wearing a cross made of nails.
The Right Reverend Justin Welby, Bishop of Durham, is grilling top bankers as part of a new parliamentary inquiry into “banking standards” that represents the U.K. government’s latest attempt to shake up the industry. The inquiry was established in July on the heels of news that several banks allegedly sought to rig interest rates such as the London interbank lending rate, known as Libor.
Bishop Welby, a former oil executive who sits in Britain’s House of Lords, has joined nine other lawmakers in assembling a report that will consider new rules on everything from corporate governance to conflicts of interest. The inquiry also involves a series of public hearings already under way.
Sitting in a castle in his diocese in northern England, Bishop Welby said the inquiry isn’t about digging into the details of banks’ alleged failings in the Libor scandal and other matters. Rather, it is an attempt to determine more broadly the future role of the industry.
“It’s an existential question,” he said. “It’s about why the banking industry is here.”
The arrival of one of the Church of England’s most respected bishops into the debate underscores the depth of British banks’ problems, according to industry experts.
“The issue of public trust is something that the banks are going to continue to struggle with,” said Tony Smith, global head of financial services at market-research company Ipsos. “There are going to be many more skeletons in the cupboard.” The appointment of a bishop to an investigative panel could serve to “inject ethical and moral standards to rein in the industry,” he added.
Since the British government bailed out Royal Bank of Scotland Group RBS.LN +0.23% PLC and Lloyds Banking Group LLOY.LN -0.59% PLC in 2008 and 2009, there have been a number of government reviews and reports. The fallout has seen bankers fined, fired and even stripped of a knighthood, as was the case with former RBS chief Fred Goodwin. Meanwhile, the British economy remains stagnant and bank lending soft.
Bishop Welby, who before he accepted consulted the archbishop of Canterbury about the political ramifications of joining the panel, brings both an ethical and business perspective to the inquiry. He spent 11 years in the oil industry, working both in Paris, for French oil company Elf Aquitaine and London as a specialist in West African and North Sea projects. In 1984 he became the group treasurer of oil exploration company Enterprise Oil PLC.
The bishop quit the oil industry in 1987, when he says he heard a calling from God to be ordained. The decision had nothing to do with any ethical qualms about what he did for a living, he says. He joined the church as a curate near Coventry and worked in some of the country’s most deprived areas, along the way climbing the ranks to become dean of Liverpool in northwest England. It was during this journey that he acquired a cross made of nails from Coventry Cathedral, which was bombed during World War II.
Last year he was named bishop of Durham, the Church of England’s fourth-most senior bishop. Some observers say he could be in line to be the next archbishop of Canterbury—the top job in the Church of England. He declined to comment on the possibility.
His background in business still elicits surprise. During a speech in May at the House of Lords, Bishop Welby mentioned that he traded derivatives at Enterprise Oil. “There was this rustle round the chamber,” he recalls. A former chancellor of the Exchequer stood up and said, “That is the first time that I have ever heard a bishop come out…as a derivatives trader,” the bishop said.
His time in the oil business could prove useful. During his oil days, he dealt with foreign-exchange trading and insurance, and became familiar with the workings of Libor.
On a recent day, after a Eucharist service in Auckland Castle, a dark-stoned building that has housed the bishops of Durham for around 800 years, Bishop Welby explored ideas for changing what he calls the “most concentrated and cartelized banking industry in Europe.”
“Coming from a Christian point of view on human sinfulness and failure, the efficient market system doesn’t work,” the 57-year-old says. “People don’t make rational decisions in markets more than anywhere else.”
He says customers have to be put back into the heart of U.K. banking but that issuing a lot of new rules isn’t the answer. Instead, Bishop Welby says he would like to see the creation of new banks, hoping that more competition would force them all to lend more and deploy their services across more communities.
“I am not in favor of knocking the banks—financial services are essential to recirculate excess funds to areas where they can be invested,” he says. However, banks need to focus on sustaining economic growth rather than returns, he adds.
Lenders also need to be more realistic about their businesses, he says. He praised Deutsche Bank AG’s DBK.XE +2.33% decision to cut its targets for return on equity, a measure of profitability—saying the new targets represented the “utility level” returns that should be expected from banks.
Some have questioned whether the commission into banking standards will have any impact. John Mann, a member of Parliament who isn’t part of the committee, says it will produce a “tame report,” noting in a recent speech that “Parliament remains timid and cowed by the bluster of investment banking.” Mr. Mann has set up his own inquiry.
Banks already are experiencing the bishop’s sharp questioning. He recently quizzed Barclays’s incoming chairman, David Walker, about issues ranging from risk to accounting principles.
“Whose risk appetite are you talking about?” said the cleric to the banker. “The country’s? Society’s? The central bank? Or the shareholders’?”