What the Banking Commission report says about…

…bad bankers

The commission wants to encourage greater personal responsibility, through making it clear with whom the buck stops for each key area within a bank, and sanctions including a criminal offence of reckless misconduct in the management of a bank. The report emphasises that it would be rare to secure a conviction under this offence, but that it would apply ‘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 customers’.

It also recommends that the PRA and FCA be able to put banks into ‘special measures’, where the organisation will make a commitment to address concerns identified by the regulator. A bank in special measures would receive intensive and frequent monitoring from the regulators.

There was an ‘accountability firewall’, the report says, between those in supervisory or leadership roles and those on the frontline guilty of misconduct.

…money

As part of this desire for increased personal responsibility, and given public anger at high pay for poor performance, the commission wants remuneration packages to encourage a long-term perspective in staff. The report says: ‘The public as taxpayers have bailed out the banks. The public have the sense that advantage has been taken of them, that bankers have received huge rewards, that some of those rewards have not been properly earned, and in some cases have been obtained through dishonesty, and that these huge rewards are excessive, bearing little or no relationship to the value of the work done.’

It argues that senior bankers’ rewards were ‘not sufficiently aligned with the long-term interests of the firm’ and instead wants much more remuneration to be deferred, in some cases for up to 10 years. And if a bank needs a bailout, that remuneration can be cancelled.

…governments

It’s not just bankers who come in for a bashing in this report. Politicians don’t have an entirely comfortable time, either. The report claims many governments have been ‘dazzled by the economic growth and tax revenues promised from the banking sector’, and argues that the regulatory regime ‘focused on detailed rules and process which all but guaranteed that the big risks would be missed’. It says:

‘The underlying causes of poor banking standards do not lie only in the banks themselves. The financial crisis, individual bank failures and the recent string of conduct failings have all been characterised by poor regulation in the UK and in many other countries.’

…RBS

This report is going to make meaty, and in some cases rather chewy, reading for the Treasury. One particularly awkward bit is the section on RBS, where the Commission says ‘the government has interfered in the running of the two partly State-owned banks, particularly RBS’. It says the government has interfered both directly, or using UKFI as a proxy and that ‘the current arrangements are clearly not acceptable’. It also warns that the current plan for dealing with RBS ‘risks being insufficient’, adding:

‘Although RBS management claim they will be rear to at least begin flotation of the bank in 12 to 18 months, others have challenged the credibility of this claim. There remain on the balance sheet assets with uncertain value and limited relevance to the UK economy’.

…competition

The Commission warns that large banks still benefit from being ‘too big to fail’, and makes a number of recommendations on improving competition in the sector. These include a panel of experts to examine ‘means of enabling much greater personal bank account portability’ – that’s being able to move your current account easily without changing your account number and having to cancel and set up new direct debits. It also wants the government to examine the tax treatment of peer-to-peer lending and crowd funding.