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Categories:Advisers,Politics

MP bids to hold directors to account for losses

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All-party Parliamentary group on economics, money and banking chair Steve Baker wants directors of financial institutions to be forced to take personal liability for their firms’ losses.

In a private member’s bill to be debated later this month, Conservative MP Baker calls for any losses to be “made good” first by directors’ bonuses which should be held back for five years, and then by personal bonds worth £2m or half of the director’s net wealth.

He says if this is not enough to cover losses, directors should be required to put more money into the bank or be declared bankrupt.

Baker says: “With key decision-makers’ wealth at risk, they could be expected to take responsible decisions instead of expecting rewards for failure.”

Lloyds Banking Group used powers to claw back bonuses for the first time this week when it stripped senior staff of £2m-worth of share bonuses over payment protection insurance misselling.

Baker says: “Bankers should bear their own risks and there should never be another taxpayer bailout of a bank. My bill would achieve those aims.”

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Readers' comments (4)

  • Now there is a novel idea. Imagine bankers actually having to do this? Nice thinking but wont work unless it happens globally. If it is only in the UK, they will clear off to parts foreign where they wont have to put their own necks on the line. Good luck with it anyway Mr Baker.

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  • How about making FSA directors personally responsible for the consequences of regulatory failures instead of allowing them to foist the costs onto the industry? Accountability (sorry, we'll try to do better next time) without liability (but whichever way it goes, it won't cost us anything) is worthless.

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  • Come on, this is a foolish knee jerk reaction. No-one in their right mind would accept a Directorship under these rules. Baby would go out with the bath water.

    I've read that RBS is to freeze pay of 10,000 highest earners: no doubt an attempt to defuse public anger but the bank is still paying some bonus to them, according to the ADVFN article, even though it lost £2 billion in 2011.

    I don't accept the argument that "we'll lose them if we don't pay." As a shareholder (I bought at a very low price), my view is that the team that lost £2 billion isn't going to receive any bonus and they'd probably be facing the sack.

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  • It is an excellent idea. @Richard Brown. People would accept directorships under these terms since these are the terms upon which partnerships are arranged. Lloyds names also have personal liability of this kind. Look back in history and you'll see that this was a normal way of doing business. The point is that the rewards for any bank CEO are great enough to justify the personal liability currently. Most ambitious, talented people with half a clue about banking would be keen to do such a job, and would back themselves not to send the business bust. The key is that it would make such individuals more cautious, and it is a far cheaper and more effective method of ensuring a more conservative banking sector than 'macroprudential' rules/quotas/checking etc.

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