Leading article: Sir Fred is cornered

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The Independent Online

It now looks possible that Sir Fred Goodwin, the chief executive who drove the Royal Bank of Scotland over a cliff six months ago, could be sued after all. When it was announced on Monday that Cherie Booth QC, better known as Mrs Tony Blair, was on the case, this attracted attention mostly for the form rather than the substance. She is a celebrity lawyer hired to fight a class action in the American style in the US courts. In addition, she has taken the case on a "no win, no fee" basis – although the truth is that it is more like a "win-win, no-lose basis", as one lawyer described it yesterday. She is unlikely to have accepted the case unless she is pretty sure that it is winnable.

She has been engaged by pension funds that held shares in RBS. They want her to advise whether they could sue on the grounds that Sir Fred "falsely reassured" investors that the bank was in good shape when he should have known that it was in effect insolvent. Only yesterday, new evidence appeared to support this contention, as it was reported that current RBS directors felt that Sir Fred may have acted negligently in reassuring their predecessors that the bank had not invested in sub-prime loans.

Nor is this case the only legal mechanism by which Sir Fred might be brought to account. The evidence given by Lord Myners, the Treasury minister, to a select committee on Tuesday was extraordinary. Although most of the reporting last week dwelt on the minister's unfortunate choice of words ("one has to admire, in a non-approving sense, the dexterity of Sir Fred"), the significance of the exchange lay in the details of the process by which Sir Fred's £693,000 annual pension was agreed.

RBS directors, Lord Myners said, "consistently misdirected themselves in saying that Sir Fred's pension reflected his contractual entitlement", whereas, in fact, most of it was a generous addition in order to smooth his departure.

Some MPs on the committee wanted to clarify Lord Myners's part in signing off Sir Fred's pension. The minister told them he knew only that it was "enormous", and is now engaged in an ugly dispute with Sir Tom McKillop, the bank's former chairman, who apparently claims that Lord Myners was told the precise £16m value of Sir Fred's pension pot.

They cannot both be telling the truth. To his discredit, John McFall, the committee chairman, seems remarkably disinclined to press the minister on this point.

More important, however, is whether any of Sir Fred's pension can be clawed back on behalf of the taxpayers that now own the bank. Lord Myners's evidence suggests that there are grounds for legal action to recover at least some of it. With Ms Booth going after him for running the bank into the ground on one side and an attempt to claw back his pension on the other, Sir Fred should feel that the walls of accountability are closing in.

Again, this is important, but it is not the primary issue in dealing with the financial crisis. Most important, of course, is macroeconomic policy to mitigate the effects of the global credit crunch, which is why the G20 summit in London next week is rightly the focus of Gordon Brown's attention. In the difference between the Prime Minister and Angela Merkel, the German Chancellor, over the need for a further fiscal stimulus, this newspaper tends to Mr Brown's view. The more serious risks are those of doing too little rather than too much; if a larger stimulus proves unnecessary, it would be easier to wind it back than to climb out of a global slump.

However, the attempt to bring to account those bankers that contributed to the crisis, such as Sir Fred, is an essential part of rebuilding confidence in the ability of governments to manage global capital markets in the future. It might be objected that the hounding of one man is unfair, and that pursuing the blame game for past errors will only enrich lawyers. It might be said that executives have walked away from the wreckage of their banks with mere millions, while governments are staking trillions on rescuing the system, but that is to miss the point.

The point is that risks and rewards in financial services need to be recalibrated. It is vital not just to the restoration of responsible banking, but to the rebuilding of public trust. Given that the global credit system rests on confidence, it is important that everyone understands that credit markets reward success rather than failure.

Sir Fred's fate is not on the agenda at the G20 summit, but holding him and other bankers to account for their errors is a part of the reconstruction of the world economy. This means that, one way or another, Sir Fred should pay a personal price for the failure of RBS.