The Observer view on making bankers pay for their misdeeds

http://www.theguardian.com/commentisfree/2015/may/24/make-bankers-pay-for-their-misdeeds

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Loretta Lynch, the US attorney general, spoke for millions of ordinary people last week when she said the major banks had engaged in “brazenly illegal behaviour” on a “near daily basis”. The financial penalties for their employers have been severe, yet in the US, just a handful of junior bankers have so far been jailed for the casual recklessness and deliberate disregard for the interests of their customers and the public that helped cause the financial crisis. In the UK, the number is zero.

There are several reasons more prosecutions have not taken place, not least the fact that when the future of the entire financial system was at risk, politicians feared that aggressively pursuing fragile banks could drive them under. With the first libor-rigging trial due to start this week, we could yet see convictions. But people feel that while public finances were driven into the red by bank bailouts, bankers have never paid the price.

Part of the reason public anger remains undimmed is that there was never a public inquiry into the causes and consequences of the financial crisis. Individual bankers received sporadic grillings from Andrew Tyrie’s Treasury select committee, whose chairmanship it should be hoped he will retain. A hefty report was published into the failings at bailed-out Royal Bank of Scotland, but the investigation was conducted by the very regulators who failed to prevent the crisis. The findings of a similar inquiry into the collapse of HBOS have still never been published. Many actors in the sorry tale – politicians, regulators, bankers – had a vested interest in ensuring the truth was not rehearsed in public.

It may be easier to bang up bankers in future: George Osborne has introduced a new offence of “reckless misconduct”, carrying a penalty of up to seven years. It should certainly be easier to force them to pay back some of the bonuses earned in the good years: regulators on both sides of the Atlantic have pushed the use of “clawback” provisions in bankers’ contracts.

But as Christine Lagarde, managing director of the International Monetary Fund pointed out recently, it’s not just about changing the rules, it’s about creating an ethical culture. That takes strong leadership. And the shocking findings of a survey of bankers published last week suggested it remains a long way off. A quarter of bankers earning $500,000 a year or more told researchers they would conduct insider trading if it would net them $10m and no one would find out.

A few convictions would almost certainly help. But until bankers undergo a far more radical change of behaviour, the public will continue to feel ripped off.