Chancellor George Osborne is taking a tough stance on bad banking behaviour and irresponsible, reckless bankers. He wants to implement remedies proposed by the Commission on Banking Standards in June. The Commission of Banking Standards was formed in 2012 after Barclays Bank was fined for fixing interest rates benchmarks. Rogue bankers may face prison sentences and personal financial loss (e.g. bonuses and pension assets) in the wake of mounting bad loans. Taking steps to identify at-risk loans and monitoring bad bankers’ behaviour are among the items up for discussion in the banking reform bill before parliament.

UK banks must support business and drive the economy. Mr. Osborne declared that UK banks must be held to the highest ethical standards as the banking sector continues to recover from the affects of the global financial recession that began in 2008. In a statement presented to the House of Commons, Mr. Osborne stressed that banks and financial institutions must be healthy enough to support business and “drive economic growth.”

Call for loan ratio prudence and above-board investment programmes. Whilst the Commission calls for tough but prudent loan ‘leverage ratio’ criteria for banks (the amount the bank must reserve on its balance sheet against loans it underwrites), Chancellor Osbourne consistently returned to the lesser Basel III parameters for loan reserves agreed upon by the international financial community.

Other recommendations of the Commission include closure of UK Financial Investments, an arms-length, quasi-government holding company-construct. The holding company has made investments in Lloyds Banking and RBC/Royal Bank of Scotland. Andrew Tyrie, the Commission Chairman, says the UKFI structure is a mere “fig leaf” to cover government’s hands in the banking and financial industry. Stephen Hester, RBS’s chief executive, was removed by the Chancellor in June. Mr. Osborne continues to turn his back on the initiative to close UKFI, as he says “UKFI is staffed by highly expert professionals with extensive experience in the banking sector.”

UKFI and Royal Bank of Scotland. UKFI currently owns 81 percent of Royal Bank of Scotland’s capitalization. Chancellor Osborne quoted a previous Mansion House speech about the government’s consideration for splitting RBS into portions. “Good” assets of the bank could be sold by secondary offering to private investors, and “bad” assets would remain in government custody as problem loans are sorted. Regulators must also consider the alignment of RBS executive compensation with performance. Proposals include deferred payout of declared bonuses for up to 10 years and clawing back previously paid out bonuses to offset taxpayers’ required funding support of the bank.

‘Bad Banker’ consequences. Many UK citizens believe that bankers’ risky loans resulted in the 2008 financial crisis. Although banks around the world made risky loans that resulted in a global economic slump, citizens’ anger continues to be roused by higher than ever pension schemes for non-performing executives. Mis-selling scandals–from insurance to structured products mistakenly marketed as ‘capital guarantee’ products–cost investors millions. Calls for regulatory fines seem like very small penalties when compared to the size of the UK’s current economic woes.

Prudential Regulation Authority: Bank of England. Mr. Osborne believes that the industry will benefit from increasing industry and regulatory oversight, such as the Prudential Regulation Authority (a Bank of England industry watchdog). In addition to protecting business and individuals from bad banking practices, the Authority hopes to improve competition by improving clients’ ability to change banks and administrative/payments systems. Corporate and financial government requires the proper compliance systems to identify risks whilst maintaining ethics and cultural standards. Senior bank officials must have the authority to address risks before capital loss results. For example, compliance and internal controls allowed five annual audits at UBS to overlook established interest rate benchmark rigging at that bank.

Internal audit importance. According to Andrew Wheatley, head of the Financial Conduct Authority, upgrading internal auditors to senior executive roles would enable these professionals to supervise, rather than support, faulty bank practices. UK taxpayers must not continue to bear the consequences of bad banking practices.


Maple Leaf Financial

Each mis sold investment case is different and they are all assessed individually. Sometimes we can claim because investments were simply unsuitable and they were mis-sold. In other cases it may be because of technical shortcomings in contracts, regulatory issues or a combination of these factors.

‘Most of our clients had no idea there was a problem with their policies or investments before they spoke with us. You have nothing to lose by calling Maple leaf financial investment mis-selling to find out about your own arrangements.



The following two tabs change content below.

Tim Capper

Bringing you financial news and information in plain english for Maple Leaf Financial. My aim is to help readers understand these often complex financial instruments.