Plan to Jail Bankers Who Behave Recklessly Eyed by UK Lawmaker

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Bankers who behave recklessly would be jailed under a new law being considered by MPs and peers on the banking commission, whose final report is due next month.

Several members of the commission, which was set up by George Osborne after the scandal over the London Interbank Offered Rate, argue for a new law which would hold bankers personally liable for catastrophic losses.

One member told the Financial Times: "Banks benefit from a public subsidy, in that they know they will be bailed out if they fail. I think we want to see a sense of personal responsibility to match that."

Andrew Tyrie, the Conservative MP chairing the commission, is close to completing a draft report with the final version due at the end of May.

Mr Osborne set up the commission to look into all aspects of bankers' behaviour, under heavy pressure from Labour, and will find it difficult to reject its recommendations.

In an interim report into the failure of HBOS, published three weeks ago, the commission signalled its focus on holding bankers personally responsible for their misdeeds.

"Those responsible for bank failures should be held more directly accountable for their actions and face sanction accordingly," the report said.

The interim report stopped short of recommending more punishment for the individuals involved. Nonetheless, within days, Sir James Crosby, the bank's former chief executive, had asked that his knighthood be removed and that his pension entitlement be cut by a third. Fred Goodwin, the former chief of Royal Bank of Scotland, was stripped of his knighthood last year, amid a long-running outcry over his role in the collapse of RBS.

A new "reckless endangerment" law would be modelled on the US system, where executives can be prosecuted for putting public health or safety at risk through decisions taken at work.

The commission is split on the idea. Some believe it is the best way to make clear that the rights which bankers enjoy to government support should be matched by more responsibilities than executives have in other industries.

Others, however, worry that the proposed law could hamper lenders' daily business, and hinder growth by forcing bankers to become too conservative in their lending and trading decisions.

One commission member said: "We are agreed on most of our proposals but this one has us genuinely split."

Mr Tyrie did not respond to a request to comment.

If the panel does call for such a rule, it could find support at the top levels of government. David Cameron, prime minister, called for such a move in 2009, when he was in opposition. Mr Cameron said at the time: "We need to look at the behaviour of banks and bankers, and where people have behaved inappropriately, that needs to be identified, and if anybody has behaved criminally, in my view, there is a role for the criminal law."

That idea has since been backed by Matt Hancock, the business minister and a close ally of Mr Osborne, who said last year: "The penalties for irresponsible behaviour at such banks must be strengthened."

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The panel is also considering other proposals that could remodel the financial services sector.

One is to enforce what one member called an "internal Glass-Steagall split", which would require banks to separate their trading functions from the rest of their operations.

Under this system, riskier trading activities would be overseen by a separate chief executive, with the bank's overall CEO in charge of making sure that governance is upheld across the group.

"This would in effect turn banks into conglomerates, and protect savers if the riskier side blows up," said one member of the commission.

This suggestion could, however, be vetoed by ministers, who have instead told banks to enact a so-called ring fence to segregate high street and riskier investment banking.

Another key recommendation being considered by the commission would see the pay of miscreant bankers more directly hit. In addition to bonus clawback measures which have become widespread at banks, commissioners are looking at other structures that would allow pay to be docked in the event of disaster.