Banking Crisis: reforming corporate governance and pay in the City - Treasury Contents

8  The role of the media

Blaming the messenger?

268. For many people, the key commentator on the banking crisis has been the BBC's business correspondent Robert Peston. Robert Peston's highly characteristic delivery, with its breathless, exaggerated emphases has been the soundtrack for the crisis. Exciting and somewhat disconcerting, this seemed an appropriate medium to convey the message that the banking industry was experiencing almost overwhelming challenges.

269. Our terms of reference sought to investigate: "the role of the media in financial stability and whether financial journalists should operate under any form of reporting restrictions during banking crises". Writing in the Independent on Sunday, Stephen Glover wrote of Robert Peston:

the BBC's business editor, is probably the most powerful British journalist I have known in my lifetime. A word from him in recent weeks could bring down a bank - or save it. This is a remarkable state of affairs, and we need to examine whether he uses his power responsibly, and whether he has too much of it.[456]

270. Some commentators suggested that Robert Peston's reporting of the run on Northern Rock, or the crises affecting the banks, notably RBS, Lloyds TSB and HBOS, in early October 2008, actually exacerbated the problems that they were diagnosing. One report on 8 October noted that "Robert Peston was accused of helping to trigger the tumultuous fall in UK bank shares on Tuesday by breaking news of a private meeting between the Chancellor and bank bosses." This report linked Robert Peston's journalism with market instability: "Under heavy selling pressure, shares in all three banks fell after Mr Peston's report." City traders were reportedly "angered" by the report which was described as "unleashing market turmoil".[457]

271. Angela Knight, Chief Executive of the British Bankers' Association wrote to the chairman of the Culture, Media and Sport Committee to raise issues relating to the media's role. She complained about a series of leaks, describing it as "astounding" that they should in all cases have been given to the BBC's business editor. She argued that "the market turbulence" these reports had caused was "extraordinarily substantial".[458]

272. In a speech to the Media Reform Group in December 2008, Richard Lambert, a former editor of the Financial Times and current Director General of the CBI reflected on the huge growth in importance of the financial media since the 1970s. He felt that in the 1970s a crisis such as that afflicting Northern Rock in 2007/8 would not have emerged in the full glare of publicity. Mr Lambert acknowledged that these were different times and that the profile of financial journalism was far higher. Whilst well-sourced scoops, such as those released by Robert Peston were, in Mr Lambert's view, reasonable, other journalism was far less responsible:

What makes me sick, though, is some of the sloppier journalism we have seen in recent months. For example, ABC Bank is in difficulty-XYZ is in the same line of business, and unnamed analysts say that it is next in line for trouble. I know a lady who came to work in tears a month or two ago. She had read an exaggerated story about HBOS in her morning newspaper, and thought that her modest life savings had been lost. This kind of thing is simply unforgivable. At a time when careless headlines or injudicious reporting risk becoming self fulfilling prophecies of a very serious nature, you might have thought that the industry's self regulatory body, the Press Complaints Commission, would have had some guidance to offer about the special responsibilities of business journalists as they pick their way through the dangerous minefields of the credit crunch. But of course the PCC is nowhere to be seen in this drama. [459]

273. We took oral evidence from five eminent journalists covering the print media, terrestrial and satellite television and radio. We put to Robert Peston the suggestion that his reporting of the banking crisis had actually exacerbated it. Taking the examples of the crises affecting Northern Rock, HBOS, Bradford and Bingley and RBS Mr Peston maintained that there was a "public interest" in disclosing the material. He further suggested that each of these institutions would be in precisely the same situation as they are today irrespective of whether he had reported on them.[460] Jeff Randall, for Sky News, concurred with this view. Northern Rock, to give one example, was a "deeply flawed bank" with a "bust business model". It would not have been solvent today if Robert Peston had kept silent.[461]

274. We specifically asked Robert Peston whether his reporting was responsible for the run on Northern Rock and whether BBC footage of queues forming outside branches had contributed to the panic. He told us that he had thought a good deal about this matter but had concluded that there were structural reasons why Northern Rock had failed. The bank had only 50 branches but some 1.3 million savers; its information technology systems proved far from robust in the face of massive demands placed on them in a short period; it disseminated information to customers only by means of an "impenetrable" statement to the London Stock Exchange; finally it was the run by wholesale depositors not retail ones which had actually triggered the collapse of the bank.[462] Lionel Barber, editor of the Financial Times, additionally pointed out that the queues had in fact formed after the Government's official response not after the BBC's broadcast.[463] Jeff Randall dismissed the suggestion that an additional 48 hours' breathing space might have led to the bank's recovery. In his view the management of Northern Rock was "in denial", as evidenced by its own response on the company website in respect of breaking news of its problems: "Up on the website was a message, which was intending to be comforting, which said something like, 'Don't worry … this is a well run bank'."[464]

Regulation of the media

275. Our witnesses generally argued that the current system of media self-regulation was working well in practice. Lionel Barber noted that his paper required two sources before publishing stories which would have a major market impact, and noted his paper's self-restraint in not going to press earlier despite strong rumours circulating in the market about Northern Rock's excessive reliance on the wholesale funding market.[465] Robert Peston talked of the "massive detailed verification procedure" that the BBC adopted in respect of major financial news.[466] We asked Alex Brummer, City Editor of the Daily Mail, if he had ever refrained from publishing a story in response to pressure from the regulatory authorities, financial institutions or the Government. He recalled one occasion in 2007/8 when his newspaper had come across a document which could have been damaging to the sales process for Northern Rock and, following requests from "people at the highest level" the Daily Mail had refrained from publishing.[467] Simon Jenkins from the Guardian drew parallels with press coverage of the Falklands War where the Ministry of Defence had pointed out the dangerous consequences of some reporting.[468]

276. One suggestion sometimes mooted is that the financial media could be subject to similar guidance on the sensitivity of material they might contemplate publishing as applies to other media in respect of defence stories. These may be influenced by the DA (Defence Advisory) notice system which has been in place, in its current form, since 1992.[469] Funded by the Ministry of Defence, the DA Notices Committee comprises representatives of Government and the media. DA notices give guidance to the media on material they should refrain from publishing since it might threaten the national security. As the Newspaper Society pointed out to us, the DA notice system is in any case "entirely voluntary".[470] Simon Jenkins thought that it was "a good question" whether an equivalent process of notification could apply to the financial media.[471] However, most of the evidence we received was unequivocally opposed to such a formal system, believing that it would be the thin end of the wedge of censorship. News International thought that such a system might be manipulated by financial institutions to curb legitimate stories.[472]

277. Several of the written submissions we received argued forcefully that any attempt to impose restrictions on financial journalists would infringe article 10 of the European Convention of Human Rights. Article 10 reads as follows:

Everyone has the right to freedom of expression. This right shall include freedom to hold opinions and to receive and impart information and ideas without interference by public authority and regardless of frontiers. This article shall not prevent States from requiring the licensing of broadcasting, television or cinema enterprises.

The exercise of these freedoms, since it carries with it duties and responsibilities, may be subject to such formalities, conditions, restrictions or penalties as are prescribed by law and are necessary in a democratic society, in the interests of national security, territorial integrity or public safety, for the prevention of disorder or crime, for the protection of health or morals, for the protection of the reputation or the rights of others, for preventing the disclosure of information received in confidence, or for maintaining the authority and impartiality of the judiciary.

278. According to evidence from the Financial Times, both UK courts and the European Court of Human Rights have held that reporting restrictions constitute an interference with the right to freedom of expression. The test of necessity, according to the European Court, requires a "determination of whether a restriction was proportionate to the legitimate aim pursued and whether the reasons given by the national authorities are relevant and sufficient".[473]

279. Quite apart from the ethical questions arising from the imposition of restrictions on free reporting during a financial crisis, many contributors to our inquiry pointed out the manifold practical problems such a course of action would entail. Incisive Media, a major financial publisher, suggested that determining what constituted a banking crisis would be an impossible task. It wondered who would define a banking crisis, and what would trigger press restrictions. In its view, which was shared by other memoranda, the very designation of a state where reporting restrictions applied would in itself create panic and instability.[474]

280. The practical difficulties of imposing any uniform restraints on the press would be enormous. As many commentators pointed out to us, 'formal' print journalism and broadcasting was only one of numerous sources available to interested readers. The blogosphere was fast emerging as a source of information. Whereas the traditional media had by and large exercised restraint and judgment in reporting the current financial crisis no such inhibitions had concerned many of the informal sources of data. The blogosphere of its nature was transnational, instantaneous and operated 24 hours a day. In written evidence, the Guardian noted:

Journalists, broadcasters and publishers have ethical standards and a duty to act responsibly. It would be impossible to impose reporting restrictions on the global network of bloggers, message boards, and internet forums, and these forums are often the forums for unverified rumours. The distinction between the unidentified blogger and the professional journalist, is that the latter's reputation, and the reputation of established media operations, depends on certain professional standards, including the verification of rumours.[475]

Lionel Barber felt that the quality of financial journalism had been compromised by "lowered barriers to entry" with "the rise of blogs" and "the fact that we now live in a 24-hour news cycle".[476] It is also increasingly difficult to distinguish between online and conventional reporting. For example, Robert Peston maintains a regular blog on the BBC whilst the Financial Times Alphaville blog has been the source for a number of key revelations during the crisis. News International felt that if the financial press was regulated more severely this would simply serve to "increase the authority of comparatively unregulated sites, such as financial bulletin boards and chatrooms, which would be disastrous for the investing public".[477]

281. Perhaps the most compelling argument of all is that the current crisis was partly caused by the opacity and complexity inherent in the world's major financial institutions. Whilst those on the inside had privileged access to information, ordinary consumers were left in the dark. The Guardian very appositely quoted Jeremy Hillman, editor of the BBC's business and economics unit:

The public has an absolute right to know about weaknesses and structural problems at Britain's banks. Why shouldn't the average person have access to the same information as those in the know? How many senior bankers invested in Northern Rock in the months before its nationalisation? Not very many, I expect.[478]

282. In written evidence, the Financial Times went further in suggesting that the banking crisis had pointed not to deficiencies in the media's coverage of events but rather to deficiencies in the sources of information to the media.

The government should … be addressing the degree of public disclosure required by financial institutions—including banks, private equity firms and hedge funds. We submit that focusing merely on the role of media as opposed to addressing the overall sufficiency of disclosure obligations and public access to financial information misses the larger issue altogether.[479]

Indeed, in their efforts to inform the public the media often face fierce resistance from some institutions. As Alex Brummer explained:

Business journalists are in a very unfair competition. We are individuals working against some of the richest organisations in the world with some of the most powerful communications experts working for them.[480]

Jeff Randall described the "huge industry" dealing with public relations for financial institutions generating large earnings by distorting the truth. He cited the example of the Daily Telegraph's coverage of the imminent departure of Sir Fred Goodwin and Tom McKillop from RBS on 8 October. He told us that RBS had issued an on-the-record denial of the story and called on the proprietors of the Daily Telegraph to issue an apology. Five days later the factual basis of the story became apparent.[481] Lionel Barber described how he had a record of "all the libel suits that have been threatened by well-heeled Russian oligarchs with City law firms being paid huge amounts of money trying to intimidate the Financial Times".[482]

283. Our evidence does not support the case for any further regulation of the media in response to the banking crisis. A free and functioning press is a basic requirement of a democracy. Regulation of the media in the context of internet publication would be impractical as well as undesirable. We are not convinced by the need to draw up a parallel system of 'financial advisory' notifications to mirror the system applying to defence. The press has generally acted responsibly when asked to show restraint in particular areas. Too often, indeed, those responsible for creating the current crisis have sought refuge in blaming the media for their own conduct.

284. We acknowledge the sensitivity of much of the material broadcast by the media during the current crisis. We appreciate the pressures of competition and of the 24-hour news cycle. These can coarsen financial journalism, preventing reflection and reducing the space for verification and balancing material. It is important that editors take a responsible approach to breaking news and in particular that they verify their sources with scrupulous care. But it is crucial that the public are kept informed about institutions holding their money. If the public is to trust the banks in the future it needs to be confident it has sufficient information on how they are operating, and that such information is not restricted to those on the inside. Indeed, the Government may wish to look carefully about the disclosure obligations applying to banks and other financial institutions to see if further transparency would be beneficial.

4 456  56 Independent on Sunday, 13 October 2008 Back

4 457  57 Daily Mail, 8 October 2008 Back

4 458  58 Letter from Angela Knight, Chief Executive British Banking Association, to John Whittingdale MP, Chairman of the Culture, Media and Sport Committee (10 October 2008), cited Q1496 Back

4 459  59 Speech to the Reform Media Group Dinner, 2 December 2008, Back

4 460  60 Q 1493 Back

4 461  61 Q 1495 Back

4 462  62 Q 1510 Back

4 463  63 Q 1514 Back

4 464  64 Q 1513 Back

4 465  65 Q 1495 Back

4 466  66 Q 1493 Back

4 467  67 Q 1509 Back

4 468  68 Q 1496 Back

4 469  69 See Back

4 470  70 Ev 222 Back

4 471  71 Q 1561 Back

4 472  72 Ev 177 Back

4 473  73 Ev 124 Back

4 474  74 Ev 143; see also eg Financial Times, Ev 124 Back

4 475  75 Ev 267 Back

4 476  76 Q 1520 Back

4 477  77 Ev 177 Back

4 478  78 Ev 265 Back

4 479  79 Ev 123 Back

4 480  80 Q 1518 Back

4 481  81 Q 1540 Back

4 482  82 Q 1541 Back

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