The onset of the global financial crisis has caused great harm to our economy, resulting in plummeting asset values, lost jobs, low interest rates and stagnant wages.
Many blame the bankers and their culture of greed, excess and risk taking for causing the crisis which spawned these financial consequences.
Despite clearly reckless actions by some bankers, few have faced real censure or punishment.
A new government commissioned report on banking has concluded that where senior bankers are found guilty of reckless behaviour, they should face custodial sentences.
In addition to this ‘prison solution’, the Parliamentary Commission on Banking Standards is also recommending that bonuses for bankers should be deferred for up to ten years, linking the ultimate reward to the long-term performance of the bank and of the employee’s particular business area.
If the banker misbehaves or the taxpayer is forced to bail out the bank, deferred pay and pension rights should also be cancelled, according to the Parliamentary Commission.
It will be interesting to see how many of these recommendations are adopted and brought into law.
Due to their importance in the national and global economy, bankers should be held accountable for their actions.
There is a careful balance to strike here between deterring reckless behaviour and discouraging talented individuals from entering banking as a profession.
After all, society and the economy needs banks.
Banks play an important economic function. Despite the regular denigration of bankers, we need them at the hub of a stable and growing economy which will benefit all society.
We need well-managed banks which lend sensibly to individuals and businesses in order to help the economy grow.
We need banks to facilitate mergers and acquisitions.
Putting bankers in prison feels like a good (albeit emotional) reaction to their role in the global financial crisis.
The carrot is needed as well as the stick; how can we encourage bankers to behave properly in addition to the threat of harsh penalties for wrongdoing?
