Years of macho culture ended in financial implosion. Now MPs are to examine sexism in the Square Mile, but is it ready to change, asks Katie Allen

They call it Hermione Granger syndrome. Harry Potter’s sidekick is the brains but not the hero, and women in the City know how she feels. The big investment banks are ripe ground for tales of glass ceilings, strip club outings and hugely unequal pay. The upper echelons are dominated by men and the City has some of the starkest gender pay gaps in Britain. But now those big earning, predominantly male, stars of the financial boom and the maverick ways that took them to the top are under scrutiny.

In the post-mortem of financial meltdown, one question is growing louder. If more women – who many see as more risk aware, less short-termist – had been in senior positions at banks, would the credit crunch have been so severe?

In its bid to prevent another banking crisis the Treasury select committee has made the role of women in the City its latest focus. Chairman John McFall wants to provoke a debate about how many women are in top jobs, pay inequalities, flexible working practices and how sexist the general City culture is. The committee (its only female member is Northampton MP Sally Keeble) is also looking for evidence of the prevalence of sexual harassment and exploitation.

Harassment is something Kate Smurthwaite knows all too well. She was a 21-year-old Oxford maths graduate when she went into the City in the late 1990s. Over seven years in the Square Mile she changed roles several times to escape the worst offenders, but sexist taunts and a macho culture never really went away.

“It was everywhere, every day,” she says of her time at top investment banks and a hedge fund. “People were always going to strip clubs and lapdancing clubs after work. Sometimes with clients, sometimes without just to socialise. You can say you can choose not to go but you know that next time there’s a round of promotions the guy that’s less qualified will get promoted because he goes out.”

Smurthwaite, who has left the City behind to become a stand-up comedian, says she was jeered at for her clothes. If she wore something too modest, she was labelled “shy and embarrassed”: in lower-cut clothes she clearly “fancied” someone in the office. Colleagues regularly mailed pornographic pictures to each other and put lewd pictures on to her computer screen.

Then there were the twilight hours, which earned a special title between female allies: “We knew we had to work harder and be better than everyone else. The trading floor would empty out and after 7pm or 8pm only the women would be left. We would joke we were doing our ‘vagina tax’ work.”

Of course lapdancing clubs and lewd jokes are not entrenched in every City institution and many women bankers say they have never felt disadvantaged.

“I’ve worked in the City since 2001 and would say I have never felt I was discriminated against for being a woman. I don’t hear complaints from my female colleagues, so in my opinion the [select committee] investigation is not warranted,” says one female trader. “I don’t agree that more women in senior positions could have avoided the current crisis. Senior women I have known in management roles would have been just as likely to make the same risk assessments as their male counterparts.”

But independent pensions expert Ros Altmann thinks men would have done well to seek some female input long before the banks headed into crisis.

“Very much of City business is still done in a kind of boyish club – going out, drinking people under the table,” says Altmann, who has worked at a number of investment banks. “I am very much persuaded by the argument that if you had had more women at the top of the investment banking industry we would not have reached the excesses that we reached. There would have been more of a moderating influence, there wouldn’t have been this overriding, testosterone-fuelled, macho ‘my risk is bigger than your risk’ type thing.”

Researchers at Cambridge University have found that testosterone levels among City traders were higher on days when they made more than their average profit. French business school Ceram has asked if women are the “antidote” to the global financial crisis. Its study found that the fewer female managers a company had, the more its share price had dropped since the start of last year.

Alison Maitland, co-author of Why Women Mean Business and a visiting fellow at Cass Business School, points to studies showing women are not necessarily risk averse, but they do tend to be more risk aware when it comes to making their own personal investments. She argues a better mix of men and women at the top of banks could help avoid in future the pitfalls of “groupthink” – when everyone starts to believe the same bad idea.

“If you get people all from the same background and who have had the same experiences and are on a board or in a team working together, they are less likely to challenge each other and they are less likely to ask difficult questions because they are all thinking in the same way,” says Maitland.

With 60% of graduates being women there is another urgent reason to change. “If investment banks go back to the way they were before and don’t take this issue on of gender diversity, then they are going to miss out on more than half of the talent and are going to be very unattractive as well to generation Y, the new generation coming into the workforce. They risk becoming dinosaurs.”

In a sign of how sensitive the topic is for investment banks, none of those we called would comment on steps they have taken to improve gender equality or the need for the select committee’s investigation. Barclays responded briefly that it was “looking at formulating a response” to the committee’s announcement.

The Fawcett Society, the UK’s leading campaign for women’s rights, says the probe is particularly timely, coming ahead of the equality bill’s scheduled move to the House of Lords this winter.

“The committee’s investigation will provide extra impetus and evidence of the need for the government to take tough action on the pay gap,” said Kat Banyard, who leads the society’s Sexism and the City campaign. The group hopes that lifting the veil of secrecy over pay will help to eradicate a gender pay gap, which it says is twice as big at financial institutions than in the wider economy.

Campaigners hope the government-backed review of banking corporate governance published by Sir David Walker this month could prove another catalyst on gaining pay transparency. He argued that exposing pay structures for highly paid staff in the City and putting an end to short-term bonuses would help prevent a repeat of the financial crisis.

That is not the only positive spin-off for women, says former investment banker Kate Grussing. She now runs London headhunting firm Sapphire Partners, which specialises in finding and filling senior jobs with flexible working hours, and predicts a post-crisis era of better work-life balance. With women the primary child carers, that could usher in a far more gender-balanced City.

“Everyone is going to be paid a lot less, so individuals are going to apply a better speedometer; they can’t work 24/7. The silver lining of the downturn is going to be helpful for women in the long term.”