THE "reckless" mismanagement of a bank should be a criminal
offence, carrying a prison sentence, the final report from the
Parliamentary Commission on Banking Standards says.
The Commission was set up last year to report on the standards
and culture of the banking sector, in the wake of the Libor
rate-rigging scandal (
News, 20 July 2012). The Archbishop of Canterbury is a member (
News, 18 January).
The report, Changing Banking for Good, says that
there is "a strong case in principle for a new criminal offence of
reckless misconduct in the management of a bank". It says that the
threat of "a criminal conviction and a prison sentence" would "give
pause for thought to the senior officers of UK banks".
It continues: "The Commission would expect this offence to be
pursued in cases involving only the most serious of failings, such
as where a bank failed with substantial costs to the taxpayer,
lasting consequences for the financial system, or serious harm to
The report also recommends that "the remuneration received by an
individual during the period of reckless behaviour should be
recoverable through separate civil proceedings."
The report says: "Too many bankers, especially at the most
senior levels, have operated in an environment with insufficient
personal responsibility. Top bankers dodged accountability for
failings on their watch by claiming ignorance or hiding behind
collective decision-making. They then faced little realistic
prospect of financial penalties or more serious sanctions
commensurate with the severity of the failures with which they were
The report is severely critical of executive remuneration
packages, which have "incentivised misconduct and excessive
risk-taking, reinforcing a culture where poor standards were often
"Many bank staff have been paid too much for doing the wrong
things, with bonuses awarded and paid before the long-term
consequences become apparent. The potential rewards for fleeting
short-term success have sometimes been huge, but the penalties for
failure, often manifest only later, have been much smaller or
negligible. Despite recent reforms, many of these problems
The Commission proposes a "radical reshaping" of remuneration
for senior bankers, "so that incentives and disincentives more
closely reflect the longer run balance between business risks and
Specific reforms would include more remuneration being deferred,
in many cases up to ten years, and more of the remuneration in
forms such as bail-bonds, which favour long-term performance.
The report also proposes reforms to address "serious flaws in
governance" at banks. It also suggests that there may be
"significant advantages" in breaking RBS up into "a good bank and a
bad bank . . . including focusing the good bank on UK retail and
The report can be read at www.parliament.uk/bankingstandards.
Question of the Week: Does reckless banking deserve a prison
WHEN the Archbishop of Canterbury took to the stage on
Wednesday evening last week to debate "What makes a good bank?",
news had just hit the City that the banker he once took to task
over his response to a similar question had stepped down,
writes Madeleine Davies.
Stephen Hester, the banker, announced that he would
leave his post as chief executive of Royal Bank of Scotland in
order to comply with the Government's insistence that the bank
return to private ownership by the end of 2014. As a member of the
Parliamentary Commission on Banking Standards, the Archbishop once
accused him of giving "motherhood and apple pie" responses to his
questions about RBS's obligations to society (News,
Archbishop Welby declined to say where RBS might find a
"good man" to replace Mr Hester. But he said that "banks, to be
good, need the fear of hell and the hope of heaven, not merely the
fear of penury and the hope of a larger bank account."
Speaking in the debate at St Paul's Cathedral, organised
by the St Paul's Institute, the Archbishop suggested that "the
biggest weakness of all in the analysis of the failure of banks to
be good banks has been around understanding about human beings. We
have looked at banks as though sin did not exist and redemption and
salvation were not possible."
He said: "At the heart of good banks are good people.
And if we want to have good banks, we have to believe in fallible
people. . . If we believe in fallible people, we will work on
aspects of behaviour and training that is conditioning the body,
that recognise that human beings are both more fallible than a
systemic regulatory system will allow, and have greater potential
than our pessimism might permit."
He began with a defence of capitalism. It had "lifted
millions out of poverty", he said, and it was unlikely that the
debate's venue could have been built without debt.
Nevertheless, he agreed with the Church Commissioners'
verdict that Barclays had "repeatedly let down society with its
News, 17 May). Banks had become "too focused on the short term"
and "forgot what our role in society was and who we were there to