Bankers Damaged Your Wealth!

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The Treasury Select Committee in the UK has come out and blamed "bonus-chasing bankers" and the "failure of the supervisory system" for the meltdown of the financial system.

The committee concluded that a combination of low interest rates, a risk-taking culture, extremely poor supervision and the inability to understand the complexity of the products they were flogging led to “an astonishing mess in the financial system”.

The committee also says that UK banks were "the principal authors of their own demise". In RBS’ case, the acquisition of ABN Amro proved “how reckless RBS's growth had become and how it had overreached itself.”

The problems at HBOS arose from "liquidity issues and a lack of discipline over capital" caused by the bank's management not the economic situation.

"Rather more emphasis was placed in HBOS's evidence to us on the catastrophic global context of recent events than on a genuine recognition that responsibility for the company's plight lay with the board and the board alone."

Committee Chairman McFall added: “We have experienced a comprehensive failure of the banking system at all levels.

"The banks have failed to govern themselves effectively; senior managers failed to understand the investments being made in their name; risk management and due diligence were seemingly ignored; and the non-executive directors, often eminent and hugely experienced individuals, failed in the proper scrutiny of the banks' activities.”

Governments, politicians and central bankers were also criticized for "sustaining the illusion that banking growth and profitability would continue".

Since the onset of this financial mess, the collapse of Northern Rock and Bradford & Bingley led to heavy losses for many shareholders.

RBS and Lloyds have engulfed billions of pounds of taxpayer money.

The committee backed the Government’s decision to take stakes in struggling banks, saying more banks would have failed if they state hadn't stepped in.

But they also state “the unavoidable speed of implementation meant that the implications for both banks and Government were neither fully understood nor worked out.”

The Committee recommended more regulation to protect depositors, stating that each of the brand names a bank owns should require a separate licence, and more discussions on separating retail banking from investment banking.

UKFI, the body created to watch over the Government’s stakes in the banks was also heavily criticized for being “enigmatic” about its links to the Treasury.

“Given the importance of the task entrusted to it and the vast sums of public money involved, we need reassuring, not only of its independence, but also that there are adequate mechanisms in place to make it properly accountable to Parliament and the public," McFall said.

The MPs issued a warning that the effects of the banking mess has left a deep mark that will last for years. Public confidence in bankers shattered by the greed and incompetence the crisis revealed.

"The repercussions of this banking crisis are being felt, and will continue to be felt, by ordinary people for many generations. Looking to the future, the rebuilding of consumer trust is key."

The report was however criticized for being too weak by both the Liberal Democrats and the banking industry. Vince Cable said: "This is a disappointingly weak report. It fails to meet the previous standards of tough criticism advanced by the select committee when interrogating the bankers."

Angela Knight, from the British Bankers' Association, said we should stop blaming the bankers (ha ha - maybe they should stop rewarding their incompetence with large bonuses first) : "If we simply continue to blame the industry for all of the problems of the economy in the UK it will do little to help us out of the recession and will further damage the UK as an international financial centre."
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