BANKERS that have behaved “unethically” should be struck off by a new professional standards board, according to an influential commission into the banking industry.
The Future of Banking Commission released its long-awaited report yesterday, with a radical blueprint for the industry in the wake of the financial crisis.
It recommends that a new body should be created to police bankers, taking its cue from the General Medical Council that has the power to strike doctors and nurses off.
And the commission, chaired by Tory MP David Davis, says that bonuses should be linked to performance over a five-to-ten year period – not return on equity or higher earnings per share.
All banks should be forced to draw up living wills to prepare for potential failure, the commission said, while an international agreement to hive off investment banks from retail banks should also be pursued.
Commenting on the report, Davis said another banking crisis would “break the country”.
He added: “If we don’t do something along these lines, the next time this happens we’ll go bankrupt. It’ll all be over – we’ll make Iceland look like a successful economy.”
Treasury officials said they welcomed the report as a “contribution to debate” but played down its significance, pointing out the government has just launched a similar commission.
Sources close to the commission said its report would be taken seriously because Vince Cable, now business secretary, was one of its authors.
But Cable’s spokesperson refused to say whether he backed all of its recommendations. “He’s not distancing himself from it, but it would be inappropriate to comment on something he did in opposition now that he’s in government,” she said.
The British Bankers’ Association said the industry had already started tackling many of the commission’s concerns.
AT A GLANCE | KEY RECOMMENDATIONS
● Resolution regimes
Introduce living wills that allow banks to fail. Core deposit and lending functions should be ring-fenced with own balance sheet, liquidity and funding mechanism.
● Breaking up universal banks
Prohibit banks that advise clients from trading any form of securities. Retail and investment banks should be separated as part of international agreement.
● Derivatives trading
All securities above a certain size should only be tradable if registered on a system like the Stock Exchange Daily Official List. Traders must disclose material positions in a company, whether held as stock, options or other derivative, or whether short or long. Probe into dark pools.
No rewards for increasing return on equity or earnings per share. Link rewards to performance over 5-10 years. Rewards for senior execs in retail banking should be linked to customer satisfaction. Front line sales staff to get no sales-related bonus.
● Code of conduct for banking
Create a Good Financial Practice Code, similar to code of conduct for those in medical professions. Bankers should be trained to behave ethically.
● Depositor protection
£50,000 limit should be extended to protect deposits with different brands owned by same parent. So a customer with an Abbey and an Alliance & Leicester account – both owned by Santander – would receive a combined £100,000.