Lock up the banksters. Or, as the Banking Commission put it, create a new criminal offence of "reckless misconduct in the management of a bank". This is an excellent idea.
It flows from the key insight in today's report: that senior individuals at failed and unscrupulous banks have escaped punishment via an "accountability firewall". The top brass was able to plead that it couldn't be held responsible because, like Macavity, it wasn't there – responsibilities had been delegated and decisions made collectively. That must change, says the commission. About time, too. "Don't blame me, I was only the boss" has become the failed bankers' anthem.
It is true the banking crisis had multiple causes, not least central banks' bubble-blowing policies. But lack of accountability in boardrooms was clearly a major factor behind shabby behaviour, which was the commission's remit. Obliging senior bankers to show they acted responsibly is a sensible reform.
The threat of jail would apply only in extreme cases. For practical purposes, the commission's more important proposal is to abolish the feeble "approved persons regime" the Financial Services Authority operated ineffectually for a decade. This became little more than a box-ticking exercise and, once an individual was through the door, it was hard to be expelled.
In its place would come a "senior persons regime". The title is hardly snappy, but the principles are sound. It would apply to fewer people – just senior management – and individuals would have to assume specific responsibilities. So no more bleating that everybody everywhere was mis-selling payment protection insurance, for example. In future, if PPI was your responsibility at your bank, your pension may evaporate, the commission suggests. That would concentrate minds.
In lower ranks a licensing regime– broader than in the past – would operate and ought to be better equipped to deal with cases like Libor-rigging. The practice, we now know, was widespread but only a few alleged ringleaders will face prosecution.
The banks, inevitably, will hate licensing. They had proposed a professional body to uphold standards. The commission's response to their self-serving idea is suitably robust: have your professional body if you wish, but don't pretend it is a solution to anything.
Actually, the banks will hate large chunks of this report, which is fair indication that Andrew Tyrie's commission has understood how the industry ticks. Account portability --– which would enable customers to switch banks more easily – is too expensive, the industry argues. Really? Let's have a panel of expects take a look, says the commission, because portability might stir greater competition, which is half the battle in encouraging better behaviour.
On Royal Bank of Scotland, the commission could be said to have pulled its punches. It has not backed a good bank/bad bank split – just demanded to see the detail of the Treasury's study. But that's a reasonable stance as this is a technical question. There would clearly be a cost and hassle to restructuring RBS, but there could also be a gain from having a healthier "good" bank provide stiffer competition in lending. We need to see the Treasury's calculations.
Most of all, though, it's vital that the commission's proposals are implemented. The quickest way is to table amendments in the Lords to the current Banking Reform Bill. The chancellor should give his blessing.
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