Jeremy Warner: Time for a public inquiry on the banking crisis

George Osborne, the shadow Chancellor, is right to demand a public inquiry, similar to Hutton, into the banking crisis, though he shouldn't expect it to provide him with political ammunition in time for the general election. When it comes to this sort of thing, the wheels of government grind exceedingly slowly.

The Hutton inquiry into the death of David Kelly was a comparatively simple affair by comparison, involving limited numbers of witnesses and a quite specific set of allegations. Even a fast-tracked public inquiry is unlikely to get to the bottom of the complex series of policy misjudgments and failings that has led to nationalisation of a large part of the British banking system.

Mr Osborne wants to make Gordon Brown liable for the explosion of credit that led to the banking crisis, and the lax regulation that allowed it to happen. Yet I am not sure that he, or indeed anyone else, was vocal in warning about these shortcomings while the boom was still in full swing. Indeed, his fellow Tory grandee, Boris Johnson, the London mayor, is now gainfully employed in fighting the City's corner against the threatened regulatory backlash.

It is all very well with the benefit of hindsight to bemoan the failings of "light touch regulation", but the regime enjoyed cross-party support at the time, and as Lord Turner, chairman of the Financial Services Authority, pointed out in evidence to the Commons Treasury Committee yesterday, derivatives and securitisation were generally thought to reduce the risks of the capital markets, not enhance them.

Nonetheless, lessons cannot be learned and acted upon unless the facts are properly understood. Significant questions remain about the public policy failings that contributed to the crisis. A public inquiry, or even Royal Commission, is not just desirable but an absolute necessity. Few events in recent history cry out for it as much. Even the Government has begun to concede that this is not a crisis that can be wholly attributed to US sub-prime mortgage lending.

The origins of the credit crunch are many and varied, but an absence of adequate regulation, and capital and liquidity controls was plainly a major part of it. We need to know why this happened, and whether the tripartide arrangements, under which banking supervision was separated from responsibility for monetary policy and financial stability, played a part.

There was the usual grandstanding by MPs on the Commons Treasury Committee yesterday before their star witnesses, but little illumination. All three witnesses – Alistair Darling, Mervyn King and Lord Turner – seemed to turn up determined to say nothing new, and they largely succeeded. In the US, there are already Grand Jury inquiries and Congressional investigations galore. In the UK, there are the FSA and Treasury Committee reports into the Northern Rock affair, and, er, that's it.

More than £500bn of public money has been sunk into the UK banking system over the past year and a half. What the Governor of the Bank of England has described as the worst banking crisis since 1914 surely requires something a bit more substantive by way of public inquiry and accountability. While the Prime Minister lords it around the world championing the "British approach" to its solution, he might do well to reflect on why he allowed it to happen in the first place.