Banking – stand by for an inquiry

UPDATE 10.01pm: Labour say they will vote at every possibility to stop the creation of the proposed parliamentary committee of inquiry into banking.

This means that there could be as many as three votes - two in the Lords and one in the Commons - in the next few days.

The Tory MP who has been asked to chair the inquiry - Andrew Tyrie MP - has insisted that he wants it to be a non partisan inquiry. If Labour MPs and peers vote against its creation he has told friends that he would have to consider whether it would be possible to proceed with a committee that lacked the support of both sides of the Commons.

Note: Tomorrow the Lords will vote on a Labour amendment to the Financial Services Bill to create a public inquiry. Both the Lords and the Commons will be asked to approve the creation of the parliamentary inquiry the prime minister proposed today.

UPDATE 7.38pm: The MP who's been asked to chair an inquiry into banking has told me that this is "a ringfenced job" which is "not trying to work out how to reform the whole banking industry" but is, instead, looking specifically at one question - the Libor scandal in which Barclays was "making money by rigging the market."

In my interview with Andrew Tyrie, who has been asked to chair a cross party committee of MPs and peers, he says he does not see his inquiry as the sort of "Truth and Reconciliation" committee which Labour has called for.

Mr Tyrie told me that he wants his inquiry to be non-partisan. Labour has complained that the new committee has a clear government majority and have argued that there should, instead, be a judicial inquiry.

UPDATE 6.00pm: An inquiry but not as we know it. Led not by a judge but by a Member of Parliament. Staffed by politicians - other MPs and peers of all parties. Set up not with all party agreement, but in the midst of a political row.

The government insist that the inquiry they've set up will be short, sharp and effective starting within days and reporting before Christmas.

Labour reply that only a judicial inquiry will give voters what they want - a "Truth and Reconciliation" commission for bankers.

Politicians scrapped today over whose fault the mess is - in practice a question of who was more in favour of deregulation, Labour or the Tories; over who was more in tune with public anger and on the right way forward.

Government insiders reacted angrily to the suggestion that, just as on phone hacking, the prime minister risked looking slow to react and had been forced to respond to Labour's calls. Today's announcement has, I was told, "absolutely nothing to do with Ed Miliband". Then they added, not altogether consistently, this has "shot Ed Miliband's fox".

Labour will now try to force a Commons vote on whose idea of an inquiry is right.

UPDATE 3.27pm: The Prime Minister is proposing that a joint committee of MPs and peers will investigate the banking industry.

Its remit will be to examine issues of "transparency, conflicts of interest and the culture and professional standards of the financial services industry including the interaction with the criminal law".

The inquiry will be chaired by Andrew Tyrie, the Chairman of the Commons Treasury Select Committee, will be set up within days, be given support by Treasury officials and will have the power to examine witnesses under oath as well as gain access to all relevant papers. It will have most of its hearings in public.

It will report back by Christmas so that its proposals can form part of the Financial Services Bill which will implement the reforms recommended by the Vickers Inquiry.

UPDATE 1.05pm: Government sources are keen to point out that

A. They have "shot Ed Miliband's fox"

B. The announcement of an inquiry has "absolutely nothing to do with Ed Miliband"

Clearly, discussions about an inquiry have taken place over the weekend as the government is ready to announce both the terms of the inquiry and the name of the person chairing it so that work can begin in a matter of days. That said talks about the nature of the inquiry were still taking place inside Number 10 until an hour or two ago.

UPDATE 11.55am: The government is to set up a wider inquiry into banking to report by the end of the year.

It will not be a full Leveson-style public inquiry. However, it will be separate from, and much wider than, the inquiry already announced into the abuses of LIBOR - inter-bank lending rate - at Barclays and other banks.

The aim will be for its conclusions to lead to instant changes in the law in the Financial Services Bill, which is currently going through Parliament.

The chancellor will spell out the detail this afternoon. I understand that the prime minister and the deputy prime minister have met this morning to agree the details

11:44 BST: Labour calls for the boss to be sacked and for a full independent inquiry. The government resists but then gives in. Sound familiar? What happened on the phone hacking scandal may be about to happen again on the banking scandal.

Ed Miliband significantly hardened his position in the past few days - calling for Barclays Chief Executive Bob Diamond to quit and calling for an inquiry.

David Cameron has, so far, only called for accountability at Barclays to go the very top and for a narrow inquiry into the management of LIBOR - the inter-bank lending rate.

Miliband wrong footed Cameron on hacking in the way Cameron outwitted Brown on MPs expenses. My hunch is that the prime minister will not want to feel outmanoeuvred again.

On the other hand the government does not want to set up a Leveson-style inquiry into the banks in haste only to repent at leisure when many in the financial sector conclude that London is no longer a place where they and their business are welcome.

So, the question is - is there an inquiry which is broader than the one the government has so far announced but less broad than the one Labour are calling for. That is the discussion taking place now, I'm told.

Watch this space.