LONDON - The British government on Monday backed a set of recommendations to improve standards in the banking industry, including measures that could have bankers in Britain facing jail time for poor business decisions.
George Osborne, the chancellor of the Exchequer, said that the government would adopt the wide-ranging proposals presented last month by a parliamentary commission on banking standards. Mr. Osborne had asked the commission to come up with ways to improve the banking system and make banking executives more accountable for their actions following the financial crisis and a handful of recent banking scandals.
“The government is determined to raise standards across the banking industry to create a stronger and safer banking system,†Mr. Osborne said in a statement. “Cultural reform in the banking sector marks the next step in the government’s plan to move the whole sector from rescue to recovery,†he said.
The steps are part of the government’s wider efforts to restore trust in the banking sector as a way to support a recovery of the British economy. Mr. Osborne said that the hoped a more stable banking system would increase lending to businesses, spur growth and create more jobs. A string of trading scandals and continued high pay for some of Britain’s bankers have led to widespread public anger and prompted the government to look into tightening rules on conduct and pay.
“If we’re to get our economy back on track, we need to get the banking system back on track first,†Vince Cable, the secretary of state for business, said in a statement.
The government plans to make a criminal offense “reckless misconduct for senior bankers.†Those found guilty could face a jail sentence.
The step would be “a helpful deterrent†against senior executives risking giant losses at banks that would result in a government bailout and cost the taxpayer billions of dollars, officials say. British lawmakers said the new legislation is aimed at making financiers more cautious when deciding on the bank’s strategy and investments.
“It is important to ensure that those who run banks are fully accountable for their actions,†the government said in its response to the commission’s recommendations. The financial crisis highlighted a lack of effective means to hold individuals to account for bad decisions, the government said.
Public anger in Britain has focused on Frederick A. Goodwin, who managed Royal Bank of Scotland when it went on an ill-advised acquisition spree. He left the bank with a large retirement package as the government had to rescue the bank and the banking system from the brink of collapse.
Mr. Osborne also pledged to work with the financial regulators to allow bonuses to be deferred for as many as ten years and for entire bonuses to be clawed back at banks that required government aid. Many British banks already started to change the way they pay staff by increasing the portion of the bonus paid in stock rather than cash and deferring some of that payment for several years. In addition, the European Union announced plans to cap bankers’ bonuses beginning with 2014 payouts.
In a speech last month, Mr. Osborne already followed one recommendation of the banking commission. He requested a review into whether to split Royal Bank of Scotland, which continues to be majority-owned by the government after the 2008 bailout. The government has said that it would decide whether to separate R.B.S.’s bad loans from the rest of the group by autumn.
