Watchdog slams 'giant failure' that led to banking crisis

Tough new sanctions needed on directors of banks that fail, Lord Turner tells MPs

Britain's chief financial watchdog last night accused the financial establishment of a "giant intellectual failure" in the run-up to the financial crisis and called for tough new sanctions on the directors of banks that fail.

Lord Turner, the outgoing chairman of the Financial Services Authority, told the Parliamentary Commission on Banking Standards: "Banks are different in nature from retailers or manufacturers or hoteliers, they have the ability to make a mess of the economy rather than simply make a mess of their own businesses."

Lord Turner said bank directors as a result could not simply consider their role as being to maximise returns for shareholders as a result, and added: "There have to be sanctions which are different for bankers than the normal set of rules that apply to other sectors of the economy.

"People have often said in other sectors that Britain is too unwilling to accept serial bankrupts. That is fine for, say, innovative high-tech businesses. In relation to bankers, that is a disaster."

Lord Turner earlier warned: "In the world of those responsible for the financial system and risk management, there developed a theory (over the last 30 years) which was based upon the benefit of having efficient markets and the benefits of innovations and competing markets which was wrong. It was dangerous and a form of intellectual arrogance."

He said that Britain needed to become "reasonably safe against the re-emergence" of the "delusion" which took hold of banking in the run-up to the financial crisis that the system was made safe by these factors.

He said: "The question is how to we design it for 25 years' time when we have another. This time it's different, this time we're cleverer."

Lord Turner also warned that the network of interlinked derivatives traded between banks could yet spark another crisis: "I question whether we have been radical enough in questioning the 30-year explosion in interconnectedness and its potential for creating risks that we don't yet understand."

Andrew Bailey, who is head of prudential supervision at the FSA, said earlier that he feared giving watchdogs the power to force a break-up of banks which seek to break a proposed "ring-fence" that will protect depositors and small businesses could be effectively worthless. He feared regulators may be cowed by the big banks' lobbying power, particularly with politicians.

He added: "This is an industry that is habitually innovative and habitually will try and tunnel under the ring fence. A deterrent power has a lot of merit [but] it is a little bit like nuclear warfare, it has to have meaning.

"You have to create a structure where a power can be used if it is appropriate. It's a reality that I observe in this business, there is a very strong lobbying force, lobbying of politicians, lobbying of us."

The Commission, which will have a key role in shaping the Banking Bill, has repeatedly questioned witnesses on whether such a power would be effective in preventing banks from attempting to break through or "game" the ring-fence.

Suggested Topics
News
The Banksy image in Folkestone before it was vandalised
people
Life and Style
tech

Sales of the tablet are set to fall again, say analysts

News
Brian Harvey turned up at Downing Street today demanding to speak to the Prime Minister
news

Met Police confirm that there was a 'minor disturbance'

Life and Style
A street vendor in Mexico City sells Dorilocos, which are topped with carrot, jimaca, cucumber, peanuts, pork rinds, spices and hot sauce
food + drink

Trend which requires crisps, a fork and a strong stomach is sweeping Mexico's streets

PROMOTED VIDEO
Arts and Entertainment
George Lucas poses with a group of Star Wars-inspired Disney characters at Disney's Hollywood Studios in 2010
films

George Lucas criticises the major Hollywood film studios

Sport
football West Brom vs Man Utd match report: Blind grabs point, but away form a problem for Van Gaal
Arts and Entertainment
Bloom Time: Mira Sorvino
tvMira Sorvino on leaving movie roles for 'The Intruders'
Arts and Entertainment
Gotham is coming to UK shores this autumn
tvGotham, episode 2, review
News
i100
News
First woman: Valentina Tereshkova
peopleNASA guinea pig Kate Greene thinks it might fly
News
ebooksAn unforgettable anthology of contemporary reportage
Voices
Chris Grayling, Justice Secretary: 'There are pressures which we are facing but there is not a crisis'
voices

Does Chris Grayling realise what a vague concept he is dealing with?

Life and Style
The charity Sands reports that 11 babies are stillborn everyday in the UK
lifeEleven babies are stillborn every day in the UK, yet no one speaks about this silent tragedy
News
Blackpool is expected to become one of the first places to introduce the Government’s controversial new Public Space Protection Orders (PSPOs)
news

Parties threaten resort's image as a family destination

Life and Style
Northern soul mecca the Wigan Casino
fashionGone are the punks, casuals, new romantics, ravers, skaters, crusties. Now all kids look the same
Life and Style
gaming

I Am Bread could actually be a challenging and nuanced title

Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Customer Service Executive / Inbound Customer Service Agent

£18 - 23k + Benefits: Guru Careers: We are seeking a Customer Service Executiv...

ASP.NET Web Developer / .NET Developer

£60 - 65k + Benefits: Guru Careers: We are seeking a ASP.NET Web Developer / ....

Operational Risk Manager - Asset Management

£60,000 - £80,000: Saxton Leigh: Our client is an leading Asset Manager based...

Project Coordinator - 12 month contract

£27000 - £32000 Per Annum: Clearwater People Solutions Ltd: Our large charity ...

Day In a Page

Two super-sized ships have cruised into British waters, but how big can these behemoths get?

Super-sized ships: How big can they get?

Two of the largest vessels in the world cruised into UK waters last week
British doctors on brink of 'cure' for paralysis with spinal cord treatment

British doctors on brink of cure for paralysis

Sufferers can now be offered the possibility of cure thanks to a revolutionary implant of regenerative cells
Ranked seventh in world’s best tourist cities - not London, or Edinburgh, but Salisbury

Salisbury ranked seventh in world’s best tourist cities

The city is home to one of the four surviving copies of the Magna Carta, along with the world’s oldest mechanical clock
Let's talk about loss

We need to talk about loss

Secrecy and silence surround stillbirth
Will there be an all-female mission to Mars?

Will there be an all-female mission to Mars?

Women may be better suited to space travel than men are
Oscar Pistorius sentencing: The athlete's wealth and notoriety have provoked a long overdue debate on South African prisons

'They poured water on, then electrified me...'

If Oscar Pistorius is sent to jail, his experience will not be that of other inmates
James Wharton: The former Guard now fighting discrimination against gay soldiers

The former Guard now fighting discrimination against gay soldiers

Life after the Army has brought new battles for the LGBT activist James Wharton
Ebola in the US: Panic over the virus threatens to infect President Obama's midterms

Panic over Ebola threatens to infect the midterms

Just one person has died, yet November's elections may be affected by what Republicans call 'Obama's Katrina', says Rupert Cornwell
Premier League coaches join the RSC to swap the tricks of their trades

Darling, you were fabulous! But offside...

Premier League coaches are joining the RSC to learn acting skills, and in turn they will teach its actors to play football. Nick Clark finds out why
How to dress with authority: Kirsty Wark and Camila Batmanghelidjh discuss the changing role of fashion in women's workwear

How to dress with authority

Kirsty Wark and Camila Batmanghelidjh discuss the changing role of fashion in women's workwear
New book on Joy Division's Ian Curtis sheds new light on the life of the late singer

New book on Ian Curtis sheds fresh light on the life of the late singer

'Joy Division were making art... Ian was for real' says author Jon Savage
Sean Harris: A rare interview with British acting's secret weapon

Sean Harris: A rare interview with British acting's secret weapon

The Bafta-winner talks Hollywood, being branded a psycho, and how Barbra Streisand is his true inspiration
Tim Minchin, interview: The musician, comedian and world's favourite ginger is on scorching form

Tim Minchin interview

For a no-holds-barred comedian who is scathing about woolly thinking and oppressive religiosity, he is surprisingly gentle in person
Boris Johnson's boozing won't win the puritan vote

Boris's boozing won't win the puritan vote

Many of us Brits still disapprove of conspicuous consumption – it's the way we were raised, says DJ Taylor
Ash frontman Tim Wheeler reveals how he came to terms with his father's dementia

Tim Wheeler: Alzheimer's, memories and my dad

Wheeler's dad suffered from Alzheimer's for three years. When he died, there was only one way the Ash frontman knew how to respond: with a heartfelt solo album