In its third report on the banking crisis published today, the Treasury Select Committee says: “We express concerns that the Turner Review downplays the role that remuneration played in causing the banking crisis and question whether the Financial Services Authority has attached sufficient priority to tackling remuneration in the City.”
The report also concludes that Lord Myners was naïve when anticipating the public reaction to former RBS CEO Sir Fred Goodwin’s dismissal and remuneration arrangements.
It says: “We conclude that Lord Myners’ assertion that his precept to the RBS Board – that there should be no reward for failure – did not represent an adequate oversight of the remuneration of outgoing senior bank staff.
“Instead, it would have been far better if Lord Myners had given a stronger, clearer direction of Government requirements for a bank in receipt of public funds and had assured himself by demanding to be kept informed of the detailed negotiations that were taking place.”
The report says the apologies the Committee heard from former RBS and HBOS executives had a “polished and practised air”.
It says the witnesses also betrayed a degree of self-pity, portraying themselves as the unlucky victims of external circumstances.
Credit rating agencies also come under fire from the TSC which says it remains “deeply concerned” by the conflicts of interests faced by them and says it has seen little evidence of the industry tackling this problem with any sense of urgency.
The report goes onto question whether Sir David Walker’s close links in the City mean he is the right person to conduct the Walker Review of corporate governance currently being undertaken in the banking sector.
It also proposes possible restrictions on the number of non-executive directorships an individual can hold, a broadening of the talent pool from which the banks draw upon and reforms to ensure greater banking expertise among non-exec directors.
It recommends that the FSA consults on ways to improve financial reporting to provide information on bank activities in a more accessible way.
TSC Chairman John McFall says: “Bonus-driven remuneration structures led to a lethal combination of reckless and excessive risk-taking. The design of bonus schemes was not aligned with the interests of shareholders and the long-term sustainability of the banks and has proved to be fundamentally flawed.
“Our report outlines clear failings in the remuneration committees within the banking sector, with non-executive directors all too willing to sanction the ratcheting up of senior managers’ pay, whilst setting relatively undemanding performance targets.
“Looking forward, we are also concerned that the FSA seems not be taking tackling this issue seriously enough.”