Financial sins

Sir James Crosby, former chief executive of the failed bank HBOS, has done the honourable thing in surrendering his knighthood and part of his generous £580,000 annual pension. As last week’s damning parliamentary report on the bank’s collapse made clear, he was “the architect of the strategy that set the course for disaster”.

Five years on, public outrage over the greed and excess that helped bring down some of Britain’s biggest banks has not faded. The widespread sense of injustice has been stoked by revelations of mismanagement, incompetence or even fraud, as in the Libor rate- rigging affair. Few of those responsible have been held to account. More have walked away with generous pecuniary rewards despite their manifest failures and the subsequent decision to bail out the banks with taxpayers’ money.

The bankers have much to answer for, but so have the government and regulators. In contrast to the US, Britain was slow to investigate what went wrong. There are also grounds to criticise the manner in which the bank bailouts were structured. The government might have done more to claw back the outsized rewards amassed by executives who presided over their overstretched institutions. The reality, however, was that such pension arrangements for executives were very much secondary to the urgent need to stave off a collapse of the British banking system.

It is also debatable whether efforts to claw back Sir James’s entitlements would have passed legal muster. It is far from clear that, on current evidence, financial authorities can ban Sir James or his colleagues – Lord Stevenson, former chairman, and Andy Hornby, his successor as chief executive – from future directorships. A formal enforcement case would have to be launched and that option was dropped last year. Authorisation for positions in financial services can be refused based on a lack of competence. But none of the HBOS three is currently authorised.

This should change. In future, banking executives should not be given guaranteed rewards for failure. Contracts should include clauses stipulating that pension entitlements could be reduced if the bank failed or, worse, had to be rescued by taxpayers.

Sir James, who since last week’s revelations has stepped down from board positions, is being punished in the court of public opinion. But there should be nothing voluntary about returning rewards that were never justified.