Bankers will be jailed if they recklessly endanger banks that end up having to be bailed out by the taxpayer, British prime minister David Cameron has declared.
The recommendation is one of the key findings of the 600-page report from the Parliamentary Commission on Banking Standards.
Mr Cameron promised that banking reform legislation currently before the Commons will be changed to reflect them.
“Penalising, including criminal penalties against bankers who behave irresponsibly, I say yes. And also making sure that banks who are in receipt of taxpayers’ money – that you can claw back bad bonuses I say yes too,” he told the House of Commons.
In a lengthy series of recommendations, the commission said whistle-blowers should be encouraged and protected, while a board member should be personally accountable for ensuring that they are not subjected to discrimination, or penalty.
Responsibility for particular functions should be held by named individuals, because, currently, responsibility is often held by no one, the commission complained.
Remuneration should be deferred for up to a decade in some cases and paid in bonds rather than shares, since the latter can encourage bankers to take overly risky actions.
The financial regulator should be able to claw back, or block, the payment of bonuses, unvested pension rights, loss of office or change of control payments if banks end up needing state help.
Impose sanctions
Calling for a dramatic increase in the powers of the regulator, the commission said regulators should be able to impose sanctions if an individual cannot prove that they did everything possible to avoid a collapse – the opposite of the existing situation.
Meanwhile Britain's chancellor of the exchequer George Osborne has effectively rejected a call to break up RBS, which owns Ulster Bank, into a good and bad bank , a key recommendation by the commission.
In a speech at London’s Mansion House last night, Mr Osborne said the British government would “urgently investigate” the case for breaking up the bank. However, he said the creation of a bank would not “involve a further injection of public capital”, or taxpayers buying up more than the 82 per cent of the bank they own – which essentially writes off the idea.
The splitting up of RBS has been backed by the retiring governor of the Bank of England, Sir Mervyn King and Lord Lawson, the former chancellor, though Labour's last chancellor, Alistair Darling, described the idea as "a red herring'" that would be costly, long drawn out and "messy".
Opinion divided
The chancellor said he believed "splitting it into a good bank and a bad bank" was "probably what should have happened in 2008".
“That is with hindsight. I wasn’t in office. I didn’t suggest it in Opposition. And I’m not criticising my predecessor who had to act quickly in a desperate situation.
“The question before us now is not about what happened then, but what should happen now. Is taking bad assets that are still weighing down RBS out of the bank the right answer today? Opinion is divided – some say the disruption isn’t worth it; others that it’s the only way we’ll really restore our banking system to health,” he added.
In its “swift” review, the Treasury will particularly examine its assets in Ulster Bank and UK commercial property, the chancellor said.
RBS has channelled about a third, or £14 billion, of its bailout to prop up its Irish division since 2009. A decision on the future structure of RBS will be taken in the fall, Mr Osborne said.
