The HBOS report is a timely reminder that, when directors fail, companies fail. Banking regulation is tougher than it was, but leaner balance sheets and ring-fences won’t save us from the next crisis.
Fish still rot from the head and banks will always live and die by the quality of directors round the board table. The IoD is no fan of indiscriminate banker bashing, but where institutions fail – spectacularly so in the case of HBOS – the first place regulators need to look is the board.
But we need to be sure the right people are being held accountable, and the focus must be on the executives who have direct responsibility. Expert oversight by hard-headed independent non-executives plays a crucial role in preventing organisational failure.
But holding them just as responsible as executive directors when things go wrong, as plans being drawn up at the moment do, could deter the very best from even taking the role. This would be a dangerous mistake.
David Buik, a market commentator at Panmure Gordon, says No
Everyone who has ever been connected with markets knows there is an element of risk in banking. There is also a huge difference between incompetence and recklessness and just bare-faced criminal behaviour. They say the dividing line is thin. I am not so sure.
There is a wide gap between the brazen skulduggery seen in the Libor, commodity and foreign exchange manipulation scandals, and the irresponsible actions of some bank directors in the lead up to the crisis.
For the latter, a ban may not be fair. For the perpetrators of the former, the threat of expulsion or being banned from working in financial markets is just not a sufficient enough deterrent.
Until recently, the regulators have been under-resourced and hopelessly stretched. Consequently, the authorities have found it difficult to regularly indict alleged criminal behaviour resulting in a custodial sentence.
For those who have actually committed crimes, the only workable deterrent is the threat of spending a prolonged period in prison at Her Majesty’s pleasure.