The Saturday interview: Justin Welby, Bishop of Durham

Paddy Power has him as 6:1 to be the next archbishop of Canterbury. But Justin Welby, the Bishop of Durham, is having none of it. He really doesn't want the job. "Lets be clear, I'm one of the thicker bishops in the Church of England," he tells me. I'm not taken in by this disarming self-deprecation – something for which Old Etonians like him are not especially noted. No, there is nothing remotely thick about Bishop Welby. Which is one of the reasons why he has just been asked to be a member of the new Parliamentary Commission on Banking Standards looking into the Libor fixing scandal. That, and his background in the City. For, despite a faintly Mr Bean-like appearance, the fourth most senior cleric in the Church of England is no otherworldly bumbler. Until his ordination in 1992, he was a senior executive in the oil industry for 11 years.

"I drifted into it because I couldn't get a job when I left university, and I ended up working for Elf in France in their international finance team. They needed someone who could speak English and didn't know anything about anything, so they could shape them." More self-deprecation. In fact, he read law and economic history at Cambridge – hardly a position of total ignorance. "I stumbled into the first thing in my life that I was reasonably good at, and ended up being group treasurer in a company called Enterprise Oil PLC." Later he was to work in the Niger Delta, where oil companies were involved in the wholesale exploitation of local communities, thus prompting years of violent civil conflict.

"I was in my 20s and hadn't really picked up on all of that." But he knows it was a dirty business. After he left the oil industry, a number of his former colleagues were arrested for corruption.

"Can companies sin?" was the title of Welby's dissertation at theological college. To which his answer was an emphatic and slightly surprising yes. This is not the standard evangelical answer. Typically evangelicals are more comfortable talking about personal sin – a line that often issues in the argument that what the City needs is better, more moral, human beings. The idea of systemic or corporate sin is often regarded as an evasion of personal responsibility. But the bishop is in a different place. "I don't believe in good human beings," he insisted, "but I believe you can have structures that make it easier to make the right choice or the wrong choice."

The turning point for Welby came at a time of personal tragedy. On his return from Africa in 1983, his seven-month-old daughter Johanna was killed in a car crash in France. "It was a very dark time for my wife Caroline and myself, but in a strange way it actually brought us closer to God," he said in an interview last year.

During this period he had lunch with a friend and evangelical clergyman, Paul Perkin, who in the course of discussions challenged him as to what an ethical oil company executive might look like. "I gave the normal banal answer: someone who doesn't fiddle their expenses and sleep with their secretary." Perkin called him on this.

"No, he said, that is a decent human being. And I didn't have an answer. That's what got me into thinking more seriously about ethics." In 1987, he resigned from the oil industry and decided to become a priest.

Since ordination, Welby has returned to Nigeria many times, working on justice and reconciliation. It was dangerous work, as many of the militias have a vested interest in keeping the conflict going. "On three occasions it looked like I was going to get killed. One plan was to shoot me." It is experiences such as these that will make him a valuable member of the Libor investigation. For he is unlikely to be taken in by charm and spin. He knows that people can do bad things and yet appear attractive and convincing. "I have sat down with murderers in Burundi. I even liked the bloke, though I knew he had killed tens of thousands of people. And you go away horrified that you like them."

We meet at his club on Pall Mall and take a cab into the City. Welby, 56 and a father of five, is fun to be with and seems remarkably open and grounded. Eschewing grand Episcopal purple, he wears a simple black clerical shirt. As the cab skirts around St Paul's Cathedral, I ask him about Occupy and St Paul's. He knows a thing or two about cathedrals, having been the Dean of Liverpool cathedral until last year. It is physically the largest church building in the country, and the seventh largest in the world. "A close friend of mine from the Niger delta was in the Occupy camp and we spoke about it all the time. In the end he left because he felt that it had become so abusive. The wrong people started coming along." Personally, he is clear that "Occupy reflects a deep-seated sense that there is something wrong, and we need to think very hard about what's wrong." I press him on this, just to make sure I am hearing him right: "Were Occupy right that something is wrong?" He doesn't hesitate in any careful, diplomatic Anglican way. "Of course they were right. Absolutely. And everything we are hearing now says that."

This takes us to the Libor scandal and the banking inquiry. Here he is understandably more cautious. "It's a quasi-judicial process and I have to go into in with an open mind." But what of the process itself? Isn't there a problem that the same politicians who receive party funding from the City, and many of whom have previously been so enthusiastic about deregulation, are now sitting as judge and jury over the whole thing? Welby voted for a judge-led enquiry, so I suspect he shares some of these anxieties. "I don't think there is any danger of it being a stitch-up," he replies. Sensing that he is not going to be drawn further on this, I decide to talk more generally about the City.

Isn't it just one great, big conspiracy against the common good? Profits are privatised, losses socialised. How can this be a benefit to the community?

Talk of the common good is exactly where Bishop Welby is at, ethically. He cites Pope Leo XIII's 1891 letter Rerum Novarum as the greatest influence over his moral thinking. In this letter, a response to the exploitation of workers in industrial societies, the Pope sets out that the job of the state is to provide for the benefit of all, not least the most dispossessed. Though it rejects socialism, the theology it advocates lays out what later came to be called a preferential option for the poor: "The interests of all, whether high or low, are equal. The members of the working classes are citizens by nature and by the same right as the rich; they are real parts, living the life which makes up, through the family, the body of the commonwealth … therefore the public administration must duly and solicitously provide for the welfare and the comfort of the working classes; otherwise, that law of justice will be violated which ordains that each man shall have his due."

When invited to speak in generalities about Rerum Novarum, one catches more than a glimpse of what Welby will bring to the banking enquiry.

"When one group corners a source of human flourishing, it is deeply wicked. It applies to the City, to commodities traders, and to churches who say only this way is right." This is pretty strong stuff. He continues: "The City is unspeakably powerful. The longer I go on, the more I am aware of the power of finance."

So is the answer the separation of investment banking from retail banking? Surely one of the major problems with the current banking model is that they are a dangerous hybrid of the socially important high-street banks and the high-risk casino-like investment banks that gamble the markets. He is not sure this is the whole picture. German banks such as Deutsche Bank have always mixed retail and investment banking and haven't had the same problems. This is because they have had higher capital requirements (more money set aside as a cushion against losses) and because of better regulation. Likewise, Canadian banks such as Toronto Dominion and Royal Bank of Canada didn't run into trouble because the regulators had a firmer hand on the tiller. "In this country, banks like NatWest had gearing ratios of 35:1 and nobody was stopping them." The problem, he thinks, is that we let the banks get away with building up too much leverage. And we allowed the accountants to hide the extent of the banks' exposure to debt by netting off one debt against another in such a way that their liabilities looked to be zero on a balance sheet, whereas in fact they were exposed by billions of dollars.

"Big bang also changed things hugely," he argues. The shift from open outcry trading to electronic trading removed the human element. "There's something different about looking someone in the eyes and doing something dishonest to doing it over the phone or screen." Here he agrees with the philosopher Emmanuel Levinas, who argued that the face of the other is the true site of human obligation. Looking into somebody else's face when you trade with them is a way of keeping a person honest.

None of which needs a Christian theologian to explain. Here he reaches for a letter from the economist John Maynard Keynes to Virginia Woolf. The Bishop tries to recite the quote from memory: "We are the lucky generation, we have inherited the benefits of our father's faith but don't have the moral obligations. The next generation will be lost in their lust like dogs. We have destroyed Christianity, they will reap the cost of that." In other words, Welby suggests we are living off and running down the cultural capital of Christianity. I point out to him that Stephen Green (Rev'd Stephen Green, now Lord Green, trade minister and author of Good Value, a book about ethics and finance) ran HSBC when it was laundering Mexican drug money, and Roman Catholic John Varley was CEO of Barclays. Christianity may offer little mitigation against City wrongdoing or morally significant mistakes.

Welby doesn't want to personalise the issue, and defends the possibility that heads of big organisations don't always know everything that is going on. "Sometimes you just have to work on trust." But there's the rub, for someone with such a well-developed sense of corporate and individual sin. "Keynes saw the fallibility of human beings, but not clearly enough. He thought we could get to the point where we could be satisfied with enough. It is clear that in this place [the City] this is not going to happen. The opportunity to make enormous sums of money is enormously corrupting."

"I have tried to avoid saying anything," he admits at the end of the interview. Well, I'm not sure he succeeded. On many levels he seems like a central-casting Church of England bishop. On the subject of women bishops he speaks of the need to square the circle, reconciling those who think it a theological necessity and those who think it a theological impossibility. How do you do this? "Well, you just look at the circle and say it's a circle with sharp bits on it."

I laugh. So does he. And on this note he heads off to a large glass City tower to talk about ethical investment. Should be a doddle for a man who can imagine a square circle. Indeed, it's probably just the sort of imaginative power we could do with from the next archbishop of Canterbury. There is quite a lot on which I would disagree with the Bishop of Durham. But with regards to being the archbishop, he would get my vote.