FOR banks to be profitable and stable – just as the Parliamentary Commission on Banking Standards wishes – they need the very best people running them.
They need to be able to attract global talent from across the banking world; industry specialists with the right experience and expertise to keep the UK’s crucial financial sector at the centre of the economy.
But despite its stated aims, this morning’s report from the commission makes achieving this impossible – hardly helpful when some of the country’s top banks are without key personnel. Top of the list of potential disincentives for wannabe senior execs – worse even than remuneration deferred by up to 10 years – is the prospect of jail time for a new offence: reckless misconduct in the management of a bank. The commission hopes it’ll give bankers “pause for thought”. In reality there is a shocking lack of clarity over how the definition could be applied, and whether actions once seen as viable could be redefined retrospectively.
The truth is shareholders and boards (with the occasional nudge from the Treasury) have already proved themselves adept at weeding out unwanted execs – not one of the current bosses of the UK’s biggest banks were in their role at the start of the financial crisis.
Of course individuals that mislead and defraud should be punished – as the fraud office proved yesterday when it charged former UBS and Citigroup trader Tom Hayes with eight counts of conspiracy to defraud in connection with Libor rigging.
But what the commission is proposing looks like something very different – prison time for human error or misplaced confidence.
Bankers are already viewed in a dim light by much of the British public, a fact that can’t fail to weigh heavily on potential candidates lining up (or not) to take the helm from Stephen Hester at RBS, or to step into Sir Win Bischoff’s shoes at Lloyds. Further discouragement is the last thing they need. Sufficient checks and punishments are already in place. Beefing them up further will leave banks unable to hire the best men and women for roles that so desperately need filling properly.
AT-A-GLANCE: THE BANKING COMMISSION’S REPORT
Defer bonus payouts for up to 10 years.
Pay bonuses in bail-in bonds, rather than shares, to further incentivise long-term performance.
Stop measuring performance through return on equity.
Cancel deferred payouts in case of individual or wider misconduct, or a downturn in performance.
Cancel senior staffs’ pensions if the bank has to be bailed out.
Make banking more professional and responsible with an industry body.
Set up a stricter licensing regime to make it tougher to become a top banker and easier to be struck off.
Replace firms’ codes and principles with a standard set of rules of behaviour.
Individuals will be held more formally and strictly to account for every task.
Senior executives will not be excused from responsibility for wrongdoing in their units just because they are distant from the action.
Even if they delegate tasks to another staff member who then misbehaves, the senior boss will still be seen as responsible.
Bankers deemed to be reckless could go to jail if their banks go bust and need state aid.
The chairman will be responsible for the board’s actions.
Whistleblowers will be given more protection, with more access to the chairman.
Amend the Companies Act to prioritise financial stability over shareholder interests in banks, in case shareholders put pressure on bosses to act in short-term interests.
Recommend the establishment of a panel on bank account switching.
It will study the costs and benefits of a system of account portability, where customers keep account numbers when they change banks, as they do phone numbers when the change operator.
Consider stripping big banks of their ownership of the payments system and replacing it with a utilities-style model.
Banks should agree on basic account requirements, like free ATM access.
If they will not, make banks work with groups like local credit unions to widen access to banking services.
Consider splitting RBS into a good bank and a bad bank.
Shake up the state-backed bank more rapidly to make it increase business and retail lending.
Scrap UKFI as the government is already ignoring the agency’s role as an intermediary and interfering directly in RBS and Lloyds.
Remove obstacles to setting up a new bank, to increase competition.
More explicitly remove the implicit bailout guarantee for big banks, which unfairly lowers their funding costs.
Give regulators powers to put banks in “special measures” if they are concerned about weak leadership.
Compel banks to raise absolute capital levels to hit capital ratio targets, instead of cutting lending.
MEET THE PARLIAMENTARY COMMISSION ON BANKING STANDARDS
Tory MP in charge of the commission
Labour MP and ex- trade and industry minister
Archbishop and former oil industry exec
Labour MP who wants RBS held together
Conservative MP and ex-banker
Labour peer who favours splitting banks
Lib Dem peer and former Citi banker
Lib Dem MP and hereditary peer
Conservative peer and ex-chancellor
Cross-bench lord and ex-civil servant