David Davison: Investment banking should stand alone

Few could rationally argue that incompetent or cavalier bankers should be rewarded with massive bonus payments, especially at a time when many lesser-paid workers are facing a pay freeze or unemployment. However, it seems to me that many of our politicians, who have been queuing up to criticise the culture of bankers' bonuses, are missing the point.

Instead of pointing the finger of blame at the likes of RBS's Stephen Hester, MPs and MSPs should be providing solutions or leadership on how we best reform banks to the benefit of the wider UK economy.

Let's not lose sight of the bigger picture: success of the banking industry is beneficial to us all. In spite of the traumatic events over the past two years, banking remains a major UK business sector and it continues to make a huge contribution to key public services – many of which are currently facing the squeeze through government austerity measures – funded by taxation. Also, let's not forget that as taxpayers, we will also see 50 per cent of the bonuses channelled directly into the Treasury's coffers.

The major problem we have with the banking sector as it is currently structured – and, to be fair, something that has been highlighted repeatedly by the likes of Vince Cable – is with the integration of investment banking and retail banking. The link between the two prevents us from allowing the high-risk investment businesses within banks to fail because they will also drag down their retail business, an event that impacts on ordinary consumers and small companies. If government can restructure the current system and separate the two, then we could simply allow investment bankers to stand or fall on the back of the risks they take.

Should stand-alone investment banks practise sound judgment and generate a strong return for the decisions they take, then let them reward their people as they see fit. However, when bad judgment prevails, then we must let them fail, knowing that in doing so the rest of us who rely on strong retail banks won't feel the direct impact.

• David Davison is director of Spence & Partners