Were the British banking industry to speak up publicly about its feelings this week, the least it would say is that there has been plenty of room for improvement. But the silence surrounding the City is revealing enough: will senior bankers finally face criminal charges, as a parliamentary task group has proposed?, will their companies find £13.4 more billion to reach a compulsory capital provision threshold set by the new regulator? Today, banks keep quiet and markets hope for the best.
The bad news started coming on Wednesday, when the Parliamentary Commission on Banking Standards published its final report. The paper seeks “reforming bank governance, creating better functioning and more diverse markets, reinforcing the powers of regulators and making sure they do their job.”
Reading the key recommendations suggested by the working group, though, shows that MPs had one more purpose: the British Parliament seeks to reorganise banking management so it’s possible to point at specific staff and board members and try them in court.
First, bankers with “the most important responsibilities within banks and assigned to specific tasks” will be pushed to enter a new Senior Persons Regime category “so they can be held fully accountable for their decisions and the standards of their banks in [certain] areas.” Second, it will be created “a new criminal offence for Senior Persons of reckless misconduct in the management of a bank, carrying a custodial sentence.” It makes sense.
The reasons argued by the commission to introduce this scheme forward are unfortunately incontestable. The MPs mention a stream of scandals–“not least the fixing of the LIBOR rate”–that have left the can of worms open. “Taxpayers and customers have lost out. The economy has suffered. The reputation of the financial sector has been gravely damaged. Trust in banking has fallen to a new low,” the report adds.
And after all those dodgy deals, the state of banks’ balance sheets isn’t any better, the commission could have remarked. On Thursday, the Prudential Regulation Authority disclosed the results of its investigation over eight banks, £1.3 trillion in assets from half their loans and advances portfolio’s gross volume, and expected losses in a three-year period. Even implementing plans already in place for this year, five entities will have to bridge slightly over 50% of a £27.1 billion gap of capital deficit before reaching the benchmark of 7% of core capital.
Royal Bank of Scotland fared the worst, and markets reflected it–not the least because of the talk by Chancellor George Osborne of its split in good bank and toxic bank if that quickens the exit of the government from the entity’s ownership. RBS’s deficit is £13.6 billion, Lloyds’ is £8.6 billion and Barclays’ is £3 billion.
From here, the road better be smooth.