The former heads of RBS and HBOS face a dressing down on Tuesday from MPs who will order them to explain how they were paid millions of pounds while presiding over the collapse of two international banking groups.
Members of the Treasury committee say the grilling, part of a wider inquiry into lessons from the crash, will be a constructive attempt to find lessons for the future.
But MPs admit they are likely to question the huge pay-outs to the bank chiefs during the boom years and their failure to anticipate the credit crunch.
“We won’t be asking soft questions,” said one committee member. “These were two world-class banks, they made huge profits for shareholders and collected a large proportion of those profits for themselves.”
The four executives facing the committee on Tuesday are Sir Fred Goodwin and Sir Tom McKillop, former chief executive and chairman of RBS, and Andy Hornby and Lord Stevenson of Coddenham, former chief executive and chairman of HBOS. As a result of recent government intervention, the state owns 68 per cent of RBS and 43 per cent of Lloyds Banking Group, the enlarged bank that took over HBOS last autumn.
“There will certainly be a large amount of interest in the remuneration of the former banking executives, who will be appearing in front of us,” said Graham Brady, a Conservative member of the committee.
Other MPs are thought likely to call for Sir Fred to pay back some of his pay from previous years. In 2007 he received over £5m in cash and shares.
MPs are also likely to call for “clawback terms” in future contracts for banking executives, which would mean them paying back “undeserved” cash.
There is growing public anger that banks plan to pay out billions of pounds of bonuses despite taking taxpayers’ money to prevent their collapse. RBS, which has taken £20bn in taxpayers’ support, is expected to pay up to £1bn in bonuses.
Alistair Darling, chancellor, came under renewed fire on Monday over his plan to hold a year-long inquiry into bank pay and management, with the Conservatives claiming it was a “totalling inadequate response” to the row over bonuses. George Osborne, shadow chancellor, said “the government should stop dithering and act”.
Sir David Walker, a City banker and former regulator, has been asked to feed in his initial findings to a Treasury white paper on bank governance and regulation in the spring, but he will not produce his final report until the end of the year. His remit includes the examination of risk management at board level – including pay and bonuses – the strengthening of bank boards and encouraging a more active engagement by institutional investors in monitoring management.
The Treasury policy paper will also include submissions from Lord Turner, chairman of the Financial Services Authority, who is conducting a regulatory review to be completed next month. Lord Turner’s report will also look at the role of bonuses, and he is expected to propose that banks with “risky” pay structures should be required to hold more capital as a buffer against future losses.
The bonus issue is set to dominate the appearance of the current executives at the big banks at another meeting of the Treasury committee on Wednesday.
Mr Darling will also be asked to explain to the Commons on Thursday the failure of the government to curb bonuses.