The City grandee told the new Parliamentary Commission on Banking Standards (PCBS) that “standards have slipped in a grave way” across the industry in recent years, with apparently sensible measures often turning out to have terrible unintended consequences for behaviour in the industry.
The abolition of maximum commissions of financial products in the 1980s, for example, led to dodgy products being sold simply by offering financial advisors a higher commission – a practice being clamped down on with the new Retail Distribution Review (RDR) rules.
Indeed pay more broadly should see more action, with the top 50 or 100 earners in a bank forced to publish their pay brackets, rather than just the board, he said, to let shareholders see a clearer picture in institutions where traders may be paid far more than top bosses.
And quarterly reporting also attracted Sir David’s ire.
“At the time I took the view that it was good, under the rubric of transparency,” he told MPs and peers.
“But it had a very powerful influence on firms’ behaviour and direction and is inconsistent with a focus on medium- and long-term performance.”
The wide-ranging session also saw Sir David call for state intervention to reform the current system of free in-credit banking, which he called “not transparent.”
“It is also unfair,” he said. “The accounts are being paid for not by people who are in credit but the people who are borrowing, who are probably paying more for their indebtedness as a consequence of those who are in credit not paying for the services.”