Gordon Brown has claimed bankers should have been jailed for their fraudulent and dishonest behaviour during the financial crisis that led to Britain’s deepest post-war recession and his defeat in the 2010 general election.
The Labour former prime minister used the second extract from his memoirs to warn that the failure to take a tougher line with wrongdoing – as pursued by other countries – has made it inevitable that rogue bankers will again gamble with public money.
“If bankers who act fraudulently are not put in jail with their bonuses returned, assets confiscated and banned from future practice, we will only give a green light to similar risk-laden behaviour in new forms,” Brown says.
The ex-PM adds in his book My Life, Our Times that he had braced himself for resignation had the government’s £50bn rescue plan for UK banks in October 2008 met with a hostile response from the financial markets.
He also reveals for the first time that Barclays made an offer to buy its stricken rival Royal Band of Scotland, which was eventually largely nationalised under Labour’s bailout package.
Brown had been prime minister for less than two months when the financial crisis began in the summer of 2007, but had been chancellor during the previous decade when the problems in the global banking system had gone unnoticed and unchecked.
The extract says Fred Goodwin, the former chief executive of RBS, should have been stripped not just of his knighthood but of his bonuses and the right to be a company director for leading the bank to the brink of collapse.
Accusing the Conservatives of being too soft on bankers since taking office in 2010, Brown says: “Little has changed since the promise in 2009 that we bring finance to heel. The banks that were deemed ‘too big to fail’ are now even bigger than they were.
“Dividends and bankers’ pay today represent almost exactly the same share of banks’ revenues as before the crisis hit.”
Brown says one of the arguments used to justify high salaries in the financial sector – that the money is reward for risk taking – has not survived the crash.
“With many banks backstopped by the taxpayers, they make their profits at least in part because of the government guarantee. The risks they are taking is often not with their money but with ours,” he says.
“And often bankers are not being compensated for risk but rewarded for failure. It cannot be right that Fred Goodwin walked away with all of his past bonuses untouched, a tax-free lump sum … and even after he agreed to halve his pension it still was said to amount to £300,000 a year.”
Brown adds that if the conduct of bankers was dishonest by the ordinary benchmark of what would be considered reasonable and honest, then there was a case for Britain following the example of Ireland, Iceland, Spain and Portugal and in launching prosecutions.
A new criminal offence of reckless misconduct in the management of financial institutions had been intended to deter irresponsible management decisions, but Brown says defendants would find it easy to get round the law by claiming that their institutions’ problems were the result of factors beyond their control – such as changes in interest rates or government regulation – rather than their own conduct.
“The Fraud Act 2006, which criminalises fraud by false representation, failing to disclose information and abuse of position, may be more relevant,” he says.
Britain led the way in the recapitalisation of the banks when the financial crisis deepened after the collapse of Lehman Brothers in September 2008.
Brown says he was unsure whether he would survive the key day, 8 October, when the bailout plan was announced.
“When I got up the next morning I told [Brown’s wife] Sarah that she would have to be ready to pack our things for a sudden move out of Downing Street. If what I was about to do failed, with markets collapsing further and confidence ebbing from Britain, I would have no choice but to resign.
“As I walked into the office, I didn’t know if I’d still be there at the end of the day.”
guardian.co.uk © Guardian News and Media Limited 2010
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