/ Money

We need bigger penalties for top bankers

RBS sign

In perhaps the understatement of the year, the headlines about the FSA’s report into the failure of RBS said that it was caused by ‘multiple poor decisions’. So should bankers be held accountable when they fail?

Well, the Financial Services Authority (FSA) report was launched today and says that senior executives didn’t understand the risks they were taking and were focused on growing the business at all costs. The board of directors did not do enough to challenge the decisions of senior executives.

Just when they should have been more cautious, executives embarked on the largest takeover in banking history by purchasing ABN Amro, even though they had only done ‘limited’ investigations into the overall health of the bank.

RBS based its decision on access to ‘two lever arch folders and a CD’ about the bank.

The FSA goes on to admit that there were failings in its old methods. It says it previously focused too much on box ticking and even said that in 2006 and 2007 it had ruled that RBS was a ‘well-managed’ firm and would benefit from less scrutiny. All of this was encouraged by politicians who called for a ‘light-touch’ approach to regulation.

Taxpayers paying the price

Taxpayers are bearing the consequences of these decisions. As of today, we are sitting on a loss of £26 billion from our stake in RBS. Whilst senior executives were handsomely rewarded, taxpayers have ended up guaranteeing RBS on losses it made trading complex derivatives and on loans to hedge funds based in the Cayman Islands.

However, no individual RBS executive will be subject to disciplinary action for these decisions. While the regulator concluded that executives had fallen short of best practice, their actions were not unreasonable.

Hold banks to account

Today’s report suggests that in the future there should be greater opportunity for the regulator to take action against senior banking executives for failure, something our Chief Executive, Peter Vicary-Smith picks up on:

‘The FSA report is a damning document. It reveals the inherent flaws in a corporate culture that focuses on bonuses and short-term profits. The Chancellor must confirm he will take tough action to protect consumers when he publishes his response to the Independent Commission on Banking next week.’

The report also suggests that automatic bans should be handed out to failed banking executives and a greater proportion of their bonuses should be subject to clawback if the bank subsequently performs poorly.

Should we make it easier to hold senior management to account for failing banks? Would senior executives at RBS have taken a more cautious approach if they knew they would be subject to enforcement action if the bank collapsed?


The real question though is…

Which hedge fund indirectly paid the bonuses?

As in, RBS managers were simply doing as they were told in order to make a hedge fund an obscene profit.

Why else would someone get a full bonus when they and the business have not performed well? Why can’t we, the layman, understand why such seemingly stupid decisions are made?

The report isn’t damning, in my opinion, it’s just a ruse

frances says:
13 December 2011

What would you charge them with ? Incompetence ?
May as well have incarcerated Al Capone for not running the Family properly.

Ellen Brown wrote an article recently called “Sheared by the Shorts”.
It makes interesting reading and shines a light on the shady activities
of the Financial world.

Do read it – it’s well worth Googling.

Bev Bruce says:
16 December 2011

I worked for RBS very briefly but left because of the way they encouraged employees to harass customers into making payments to overdue accounts. The culture (which came from senior management) was to daily humiliate employees who had ‘failed’ to bully enough people to make payments (including demanding they borrow credit cards from family members to make immediate payments over the phone). This was to try and meet targets so bonuses would be paid and it is this sort of behaviour which must also be penalised. Success is not measured simply by meeting targets, it should also be measured by demonstrating good practice.

Webster - Bromsgrove says:
16 December 2011

I have banked with RBS for 30, but their general attitude and customer indifference has encouraged me to move to NatWest, in preparation for the sell-off of the England elements of the bank. How can a ‘people’ owned business continue to pay obscene bonuses to staff, particularly when every other area of our society is tightening their belts? The Governments attitude that key personnel would walk unless they do is not sustainable. Surely there must of have been some part of our commercial law that permitted the authorities to go after Goodwin; take action against is pension entitlement; remove his knighthood and; exclude him from holding directorships in future?

Stewart says:
16 December 2011

Goodwin, as Chief exec. at the time of the AMRO decision, is culpable of not performing due diligence – why would any sane person rely on the findings of another bank, which then walked away from a deal with AMRO, to base the decision of his own bank to enter a deal with AMRO? This seems to be gross negligence of his duty. Surely his assets should be confiscated under the Proceeds of Crime Act? It is even alleged that he was busy pursuing a female employee at the time.
With reference to the obscene bonuses collected by investment bankers gambling away other people’s money, this short termist culture has brought misery on thousands of small time investors and ordinary members of the public. All bonuses should be stopped. If we are all sharing the pain of recession, why should the ones that caused it escape with their millions, while the rest of us are wondering how to survive?
If the bankers had not got away scot free, I doubt if any riots or strikes would have happened.

19 December 2011

I agree with all your comments.
i do not understand why all the directors of RBS have not yet been disqualified from holding office!


I agree with Webster Bromsgrove.

This bank only exists because of the taxpayer.

Fred Goodwin lives on a annual pension of around £340,000 and he is only 53yrs I think. He repaid a tiny amount of the capital which still yields this impressive living which only about 1% of the country enjoy during their working life.

He clearly lacks the skill of the top 1% but not the cunning and the massive misjudgement and greed that so few people have.

My hope now is that this report will mean they will go after Sir Fred and claw back more of our money and that the retribution (loss of title, barring from directorships in the future and retrospective loss of bonus) lives up to the name of ‘Fred the Shredded’ a counter balance to the Name of ‘Fred the Shred’ that he earned.

name ‘Fred the Shred’ that he earned.


It would take far too long to describe properly the depth of my feelings on this issue. So I will keep it short and just say that I believe that we have been badly let down by Politicians, Regulators and even by those organisations who campaign on behalf of citizens on this issue.

Nothing less than full separation of Retail and “casino” banking will do. But that is not what we are going to get is it? At best we will get a “Chinese walls” type separation, and Mr Osbourne will pretend he is being tough. It is not going to work. Chinese walls only work when all parties need them to work. Banks will find their way around it. Finding their way around regulations to the detriment of their customers is what they do best.

As for the Bank executives and directors who got us into this mess, they should be prosecuted. It is hard to believe that culpable offences have not been committed here. If they are not, the public should be told the reasons why not (in detail) for the sake of Public confidence in the process.

In either case there is no reason why these same Bankers are still running these Banks. The fact that many of them still are is an absolute disgrace.

pumpkin pie says:
16 December 2011

”How can a ‘people’ owned business continue to pay obscene bonuses to staf’f” .. Great comment but believe me most of the ”staff” do not get bonuses, just the fat ca