Bill Winters: ‘Bad egg’ bankers remain at work

Reporting by Helia Ebrahimi, writing by Katy Barnato
Some banks will fail stress tests: Winters

Malpractice continues in the banking world and "bag eggs" remain, warned Bill Winters, the former JPMorgan executive and one of the members of a commission charged with helping reform U.K. banks.

Winters currently heads investment boutique Renshaw Bay and was previously co-CEO of JPMorgan Investment Bank. He told CNBC that six years after the collapse of Lehman Brothers and the global financial crisis, incidents of miss-selling and bad practice continued in banks.

"I think there is still some clean up; no doubt there will be some bad eggs. Among the millions of people that work in banks, there will be some bad eggs, there always will be," Winters said on Thursday.

He said bad practice was typically the preserve of individuals rather than institutions, but added: "If it becomes clear there are ongoing problems at the tops of these organisations that would suggest I'm wrong."

During the 2008 financial crisis, some governments were politically and economically crippled by attempting to prop up struggling "systemically important" banks. Financial institutions that were bailed-out or received government loans included U.S insurer AIG, U.K. banks Northern Rock, Royal Bank of Scotland (RBS) and Lloyds Bank, and Spain's .

Winters said the "too big to fail" quandary — where certain financial institutions were judged so economically important that they must be bailed-out by taxpayers if they faced difficulties — was yet to be solved by regulators.

(Read more: Fed's Lacker calls to end too-big-to-fail threat)

"I think it is a bit early to say it has been resolved thoroughly, and frankly, it won't be resolved until a big bank has failed and has been allowed to fail in a way that did not put taxpayers on the hook," he said.

"I'm not sure we are completely there yet. For example, I do not think the international coordination among the regulators in the case of global banks has been ironed out."

(View more: Banks weren't allowed to fail: Kovacevich)

Winters warned that it was difficult for regulators to define and measures financial-sector risk, and to ensure that banks abided by the spirit as well as the letter of regulations.

"As we went through the banking commission work, it became clear to me how differently the different banks applied the risk-weight rules (designed to regulate the minimum amount of capital banks must hold in proportion to assets)," he said.

"I think it is very easy for a bank to say, 'We've got a model that's better than somebody else's model, or better than the standardized framework in Basel III, and please allow us to use our model, because it is going to allow us to measure risks more accurately.' There are squadrons of people, thousands of people, whose job it is to build those models and effectively sell those models to the regulator."

Banks designated "systemically important" by the international Financial Stability Board include the U.S.'s JPMorgan Chase, Bank of America and Goldman Sachs, and the U.K.'s Barclays, Lloyds and RBS, as well as other banks in mainland Europe and Asia.

Winters said: "Banks provide a utility function as well as a lot of other things; they cannot be allowed to disrupt the functioning of the economy.

"Nor should shareholders be indulgent of a casino-type strategy that could allow all of the valuable parts of their business to be wiped out by the actions of a small sub-set of the firm."

—By CNBC's Katy Barnato. Follow her on Twitter: @KatyBarnato