19th June 2013
Perhaps the UK’s driving legislation gives us the best frame to look at the Parliamentary Commission on Banking Standard’s latest report. As with drivers in a car, bankers should be sent to jail, the Commission says, if they are found to be reckless in the manner in which they run their banks. One might extend the driving analogy to say that in several instances during the financial crisis, the banking bosses were also drunk and in charge of a dangerous bank – drunk on power and their own propaganda that is.
The other headline grabbers include
The public may finally believe that someone is advocating tough action after years of platitudes. Commission chair Conservative MP Andrew Tyrie’s stock will, no doubt, rise further. Yet all manner of changes were already being developed and implemented including a brand new regulatory system. It is not that politicians have been doing nothing. It is just that sometimes it feels that way. So how credible are these recommendations?
Well, chief executives and their senior lieutenants would be less likely to ignore their chief risk officer’s warnings if, to borrow a phrase, it might be used in evidence at a later date.
But could it hurt the City and scare off some big players? Depending how widely the law was drawn, would you base yourself in a financial centre where you could conceivably face jail or somewhere where you didn’t? What if you didn’t agree with the law philosophically and economically? Could some banks stay away from the UK?
The report also recommends abolishing the current and admittedly pretty useless approved person’s regime from the Financial Conduct Authority and replacing it with licencing. There is a strong sense that the hurdles currently are too easy to jump. But it would be a huge change – as is reforming the Court of the Bank of England. Too much change and regulators could be distracted from the day job. This is a new regulatory system that has yet to bed in. Is it the best use of the Bank and Financial Conduct Authority’s time at this stage? It comes at a time when the Government is criticising huge regulatory interventions from Europe. But if anything this home grown set of reforms is tougher albeit without the controversial financial transactions tax.
Finally, for now, whilst Mindful Money’s lawyers would not let us list the bankers we think would have been guilty of this proposed crime were it to be applied retrospectively, we are not sure it would have extended to more than twenty people at most.
To take two examples of banks that were run in a less than successful manner, but probably not a reckless one, we don’t think this tough law would have seen any executives from Bradford & Bingley and Alliance & Leicester thrown in the clink. Or if they had, it would have been grossly unfair.
Yet it was still very wise for the those banks to join a larger group and certainly there are quite a few B&B loans in the often forgotten UK bad bank. To put it another way, if this becomes law, lawyers are going to have a great time debating recklessness in a banking context.
So we are talking about a few high profile individuals, who have, it must be said already had their reputations blown to smithereens, though with the comfort of their pension settlements and some of their bonuses intact.
The country would have liked to exact more revenge yet revenge cannot be the main driver if we are discussing serious policy making. That said, we also think it will be politically impossible not to implement the big ‘prison for recklessness’ recommendation in some form and expect it will happen before the next election. But will the UK economy and society be safer with this change? There are some downsides but, on balance, Mindful Money thinks the answer is yes.