Locking up bankers ‘won’t boost economic growth’

Chancellor George Osborne. Picture: PA
Chancellor George Osborne. Picture: PA
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CREATING a criminal offence of “reckless misconduct” by senior bankers will not prevent lenders from failing, according to the Law Society of England & Wales.

Chief executive Desmond Hudson warned that locking up bankers would also fail to help economic growth.

Introducing a charge of “reckless misconduct in the management of a bank” was one of the key recommendations from the Parliamentary Commission on Banking Standards (PCBS).

But Hudson said: “Introducing recklessness as the basis for an offence means that prosecutors will have to decide – possibly years after a business decision was taken – whether it was reckless or not at the time.

He added: “At a time when growth is vital for the UK economy, it’s important that we get the balance right between ensuring adequate risk control and stimulating business. Business decisions will always involve a degree of risk – the commercial environment is unpredictable and, while a decision may be characterised as reckless with the benefit of hindsight, at the time it is taken it may be a perfectly reasonable course of action.”

Instead of introducing a criminal offence, Hudson believes regulators should use existing regulations and civil powers in order to “ensure irresponsible individuals cannot continue to work in the industry”.

Prosecuting bankers may also “deter experienced, well-qualified candidates from taking up senior positions”, the society said.

It added: “This could lead to struggling banks facing a vacuum of quality leadership at a time when they most need it.”

Hudon’s comments came a day after Chancellor George Osborne accepted the PCBS’s recommendation on reckless misconduct but rejected the suggestion of breaking Royal Bank of Scotland (RBS) up into regional or sector-focussed lenders.

In a note entitled “That’s more like it, George”, Invested Securities analyst Ian Gordon said: “Despite some vociferous support in Parliament, the PCBS’s more outlandish ideas for breaking RBS up into small pieces have been summarily dismissed.”