Tags: UK | Reckless | Bankers | Jail

UK Ponders Sentencing Reckless Bankers to Jail

By Michelle Smith   |   Wednesday, 01 May 2013 08:37 PM

In the U.K., MPs and members of the banking commission are considering the possibility of putting reckless bankers in jail, the Financial Times reported.

After the LIBOR scandal, which involved the rigging of interest rates, a commission was set up to assess bankers' behavior. According to the FT, an interim report released a few weeks ago reveals that the commission is focusing on the the idea of punishing bankers for their misdeeds.

"Those responsible for banking failures should be held more directly accountable for their actions and face sanctions accordingly," the report says.

The "reckless endangerment law" for bankers is said to take cues from legislation in the U.S. that allows health and public-safety professionals to be punished for decisions that endanger the public.

Editor’s Note: Put the World’s Top Financial Minds to Work for You

There is likely little shock among bankers that that such an idea is being considered.

In January, amid growing public outrage, The Daily Mail reported that each of the three main parties were competing to put forth hardline policies for dealing with fat cats.

The public is still seething over the RBS fiasco in which Fred Goodwin, the bank's former chief executive brought the institution to its knees. The government had to come to its aid with a 45.5 billion-pound rescue plan.

Goodwin was stripped of knighthood, but he walked away without any jail time. And according to the Daily Mail, while taxpayers are nursing a 25 billion-pound loss, Goodwin is enjoying a pension of 342,500 pounds a year.

A member of the banking commission reportedly told the Financial Times that "banks benefit from a public subsidy, in that they know they will be bailed out if they fail. I think we want to see a sense of personal responsibility to match that."

In addition to public support, a measure to punish reckless bankers is expected to find some notable government support.

The nation's prime minister, David Cameron, expressed his willingness to get tough on bankers years ago.

"We need to look at the behavior of banks and bankers, and where people have behaved
inappropriately, that needs to be identified, and if anybody has behaved criminally, in my view, there is a role for the criminal law," FT quotes him as saying in 2009.

And in addition to criminal punishment, some want to find ways to impose financial penalties on reckless bankers.

But not all are in favor of rushing to implement such punishments. Some cite concerns that doing so could hinder decision-making as bankers may become overly cautious. That, in turn, could have broader effects on the economy.

Then too, there are concerns about the deprivation of liberty for poor decision making.

"We would need to carefully consider an issue as complex as this before making any comment. But generally decisions about executive pay and City regulation should not be made on the hoof and people should not be prosecuted for making a bad judgment," Angela Knight, chief executive of the British Bankers Association told the Daily Mail.

Whether or not the commission puts forth ideas to counter the critics remains to be seen. The final report is expected this month.

Editor’s Note: Put the World’s Top Financial Minds to Work for You

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