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Make bankers personally liable, says MP
It is four years or so since the start of the financial crisis and bankers remain as unpopular as ever. It is fair to say that there are few messages of support for the profession among our postbag or inbox. But whatever our niggles and gripes about high street banking, it is the investment banks which caused and continue to cause the greatest concern.
The biggest company in the world is said to be the computer company Apple. In 2008, amazingly, it was the Royal Bank of Scotland which had “assets” of £1.9 trillion, more than the entire GDP of the United Kingdom.
It did not get to that position by paying savers a little less interest than it charged borrowers. And while RBS is now a pale and public-owned shadow of its former self, there is no general feeling that bankers in general are either contrite or more risk-averse than before. They continue to pay themselves bonuses which bear little relation to financial performance and it remains the case that the greater the risk the bank takes, the greater bankers’ remuneration might be. No wonder Sir Mervyn King said:
“Of all the many ways of organising banking, the worst is the one we have today.”
The Financial Institutions (Reform) Bill
This Wednesday, February 29th, after Prime Minister’s Questions, Steve Baker MP’s 10-minute rule motion will ask for leave to introduce a bill which aims to improve the governance of banks. Its fundamental aim is to make bankers liable for their own actions, believing that by so doing, rampant moral hazards and excessive risk-taking would be curbed.
The system at present virtually incentivises bankers to take appalling risks. If they make profits, then the bankers pay themselves even bigger bonuses. If not, then it is no skin off their nose, for it is not their money that they have risked; instead shareholders or taxpayers will have to pay to pull their chestnuts out of the fire.
Steve Baker’s bill would see board members of financial institutions liable for any losses. With unlimited personal liability their own personal wealth will be at risk if banks became insolvent. In fact they will have to post personal bonds in advance which would be forfeit if the institution made a loss.
Bonus payments would be deferred for five years to prevent the situation where profits which reward senior bankers handsomely turn out to be illusory. Not only board members would be paid from this deferred bonus pool, but also the bank’s traders. In this way, Baker believes, bankers and traders will be discouraged from excessive risk-taking.
We wish Steve Baker well with his proposed bill. He deserves our support.