c.2013 New York Times News Service
c.2013 New York Times News Service
LONDON — British lawmakers are calling for criminal prosecutions of senior bankers who cause the collapse of financial institutions, as Parliament is set to undertake a major overhaul of the country’s banking sector.
The lawmakers, which were part of the British parliamentary commission on banking standards created last year in response to a series of scandals, outlined plans for greater responsibility over how British banks were managed in a report published Wednesday in London.
The commission includes senior figures from the British establishment, including the archbishop of Canterbury, Justin Welby, and a former chancellor of the Exchequer, Nigel Lawson. Some of the recommendations will be incorporated into proposed banking legislation that is expected to come into effect next year.
British banks have faced savage criticism from politicians and the public after a series of scandals cast doubt on London’s reputation as a center of global finance.
Regulators in Britain, the United States and elsewhere have uncovered wrongdoing at the majority of the country’s largest financial institutions, including HSBC, Barclays and Royal Bank of Scotland. The investigations into the trading scandals and the continued high pay for some of Britain’s bankers have also led to widespread public anger and calls for more regulation.
“Recent scandals have exposed shocking and widespread malpractice,” said Andrew Tyrie, a British politician who leads the banking commission. “Taxpayers and customers have lost out. The economy has suffered. Trust in banking has fallen to a new low.”
After questioning leading global bankers and regulators, including Paul A. Volcker, the former Federal Reserve chairman, the British lawmakers laid out a series of controversial reforms aimed at improving accountability at the country’s largest banks.
Central to the overhaul are recommendations to make it a criminal offense to recklessly mismanage local financial institutions.
The move follows the multibillion-dollar government bailouts of the Lloyds Banking Group and the Royal Bank of Scotland after the firms’ senior management carried out a number of mistimed acquisitions and profligate lending that led to major losses for the British lenders.
By aiming at senior executives for criminal charges related to financial mismanagement, British lawmakers said the new legislation would force bankers to be less cavalier with risky trading and lending activities.
“The fact that recklessness in carrying out professional responsibilities carries a risk of a criminal conviction and a prison sentence would give pause for thought to the senior officers of U.K. banks,” the British banking commission said.
In a statement, the British government welcomed the lawmakers’ recommendations, adding that some of the changes would be incorporated into banking legislation being written by lawmakers.
The 600-page report also took aim at the culture at many of the banks operating in London. The British politicians said that excessive bonuses, high-risk trading strategies and an assumption that taxpayers would bail out lenders continued to prevail in London’s financial district. The attitude still permeates even as many banks have announced drastic job cuts in the wake of the financial crisis.
To counter these problems, the lawmakers called for changes to how bankers were paid, including the use of long-term financial incentives and potential clawbacks of compensation packages following illegal behavior.
“A lack of personal responsibility has been commonplace throughout the industry,” said Tyrie, the British politician. “Senior figures have continued to shelter behind an accountability firewall.”
The European Union has already announced plans to cap bankers’ bonuses that will begin with 2014 payouts. And many banks across the Continent have changed how they pay top earners to focus on the long-term effects of their financial decisions.
Yet since the financial crisis began, several British banks have been unable to rescind large payouts to either senior executives or midlevel traders who carried out risky activity that led to major losses at the financial institutions.
Anger in Britain has focused on Fred Goodwin, the former Royal Bank of Scotland chief executive, who received a large retirement package despite overseeing the near collapse of the British lender. Goodwin was stripped of his knighthood last year in light of his role in the fiasco.
Many British bankers, according to the lawmakers’ report, remain too focused on securing large payouts for themselves, and do not think about the consequences of their actions on the wider society.
“Banking culture has all too often been characterized by an absence of any sense of collective responsibility to uphold the reputation of the industry,” the parliamentary commission’s report said.
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As part of the proposed major overhaul, the British politicians also called for assigning specific responsibilities to banks’ senior manager in a bid to increase accountability when problems arise.
In a number of recent scandals, including the attempted manipulation of the London interbank offered rate, or Libor, top executives at some of Britain’s leading banks denied knowing that the activities had taken place.
The parliamentary banking commission’s report comes ahead of a major speech by George Osborne, the chancellor of the Exchequer, who will outline changes to the banking sector Wednesday.
The future of the Royal Bank of Scotland and Lloyds is expected to be high on the agenda, as investors and analysts expect the government to start selling its stakes in the banks as early as next year.
In their banking report, the British lawmakers said that the Royal Bank of Scotland, which remains 81 percent owned by taxpayers, could benefit by separating the toxic assets from the firm’s healthy retail banking operations. They also called for an analysis to be conducted by the end of September to potentially divide RBS into two units.
Analysts, however, say the potential breakup of the bank remains unlikely, as the British government still favors selling its entire holding in the lender in a privatization process that could take the rest of the decade.
“RBS continues to be weighed down by uncertainty over the government as its main shareholder,” the politicians said in the report. “Such problems for one of the U.K.’s largest banks weaken confidence and trust in banks.”