It wasn’t just cavalier bankers who got off scot-free in the wake of the financial crisis of 2008, writes KEN HOUSTON
In the fall-out from the financial crash, one of the most noticeable differences between the UK of GB & NI and the US of A was the consequences suffered by those at or near the top.
In the United States, several disgraced bankers have been sentenced to terms of imprisonment whereas their British counterparts not only escaped the same fate but actually managed to retain their ill-gotten bonuses and pension pots – all based on supposedly sound financial performances which were actually built on sand as well as highly unethical business practices.
Therefore there must have been wide support for the call by Mark Carney, Governor of the Bank of England, speaking at the Mansion House last week, for tougher sanctions (including tougher criminal sanctions) to be imposed for future rate-rigging and other misdemeanours.
But the speech was lacking in one respect in terms of reference to those other players in the financial crash who ‘got away with it’ – the regulators.
Set up by Gordon Brown while Chancellor, the Financial Services Authority was charged with monitoring the behaviour of banks and other financial institutions in a loosening and ever-competitive market, the intention being to prevent what actually happened (albeit no one dreamed, in their worst nightmare, of the extent to which things turned out).
This organisation clearly failed miserably in the task set by Parliament, leading to questions – as yet unanswered – as to what its senior people were doing while the self-regulatory system was crashing all around – making paper aeroplanes, perhaps, or hauling before the coals self-employed IFAs for comparatively minor misdemeanours such as persuading a client to take out a stocks and shares ISA when he would have been better sticking to cash?
Since then the FSA has been replaced by a new regulatory body, the Financial Conduct Authority, although some believe it is simply a case of ‘new name, same culture’.
Therefore while making bankers subject to criminal sanctions for being cavalier with shareholders’ and depositors’ money, it seems only proper that those responsible for any major future failures by the FCA should not get away scot-free either.
While jailing senior civil servants for laziness or incompetence might be a step too far, it does seem reasonable to expect them to be subject to tougher sanctions than was previously the case and that we hear no more examples of bonuses for failure or dismissals accompanied by payoffs which might rightly be described as ‘eye-watering’.
HAS PPI COMPENSATION BECOME MORE PROBLEM THAN SOLUTION?
The various banking scandals led to a big outbreak of “whitabootery”, which still persists to this day.
“Whitaboot the bankers?” is the clarion call of Left-leaning politicians when they explain their opposition to government budget cuts, especially on welfare, no matter how justified these might be. Ditto, trade union leaders when they make a claim for higher pay, more holidays or fewer working hours.
It is hard to feel any sympathy for said bankers but on the other hand they do seem to have become something of a scapegoat for financial failings among the population at large.
For example: “I lost my home through no fault of my own while the chief executive of the bank that repossessed it walked away with a £X million pay-off.”
Well, no one forced you to take out the equity on your property and spend it on a motor-home and the holiday of a lifetime in The Seychelles without considering the possibility that the value of the property might actually fall at some stage in the future.
‘Greedy bankers’ seem to be the national get-out clause that justifies the huge level of consumer over-spend right across the country.
Take the issue of payment protection insurance (PPI). With the possible exception of mortgages (for which an associated PPI policy would seem to be wholly sensible), no one was ever compelled to take out PPI on a loan or credit agreement. And if, for example, an electrical retailer went against the spirit of consumer credit laws and insisted to a customer that PPI was a pre-requisite of securing a loan or hire-purchase agreement, the said customer always had the option to get up and walk out, saying: “I’ll take my business elsewhere then.”
Someone I know personally took out a personal loan, which included PPI, and following missives from several claims companies, then made a successful claim for compensation.
When I inquired if the wording on the original agreement showed PPI as an optional add-on, the reply was: “I dunno. I simply looked at the bottom figure of £XX a month in repayments, decided this was something I could afford and so I signed.”
So it was free money then?
Well no, because the cost of the billions of pounds in PPI compensation has to be paid for by someone – either bank employees in terms of job cuts or in diminished deposit rates and dividends to shareholders. (The whizz-kids who dreamed up the mass expansion of PPI probably moved on years ago, their attaché cases stuffed with bonuses).
Yet some ‘economists’ (sic) still think PPI compensation has been a good thing because the monies involved has shored up consumer spending and thus boosted the economy. The fact that this is not earned new money seems not to matter!
Much political correctness has enveloped PPI on the basis that everyone who took out a policy was a ‘victim’. This has helped lead to a vast PPI-compensation industry, involving not just the growth of claims companies – the Financial Ombudsman Service now has over 2,500 employees, a majority of whom have been taken on to deal with PPI claims.
At the beginning of the year the FCA hinted that a time limit may be set on claims yet just last month warned that there might be a new wave of claims or re-claims following a landmark court ruling.
Some estimates put the value of these claims to Britain’s banks as high as £24 billion, the cost eventually filtering down to the public in one way or another. Perhaps PPI compensation has changed from being a solution to a problem.