Leading article: Two scapegoats do not add up to banking reform

Share

After all the commotion this week, one could be forgiven for thinking Britain's entire banking industry revolves around Sir Fred Goodwin's knighthood and Stephen Hester's bonus.

It is time to calm the hysteria, call off the witch-hunt and resist the temptation to do down one of Britain's most successful industries just when we need it the most.

On the matter of Mr Hester, the Prime Minister must take some of the blame. Downing Street is now denying David Cameron's involvement in pay discussions at Royal Bank of Scotland, which is 82 per cent owned by the taxpayer. But by allowing hints that he was pushing for the chief executive's bonus to be kept below the symbolic £1m mark, Mr Cameron helped to shape an outcome that is the worst of both worlds. For Mr Hester, as a senior figure in a highly paid industry, the £963,000 worth of shares he will receive on top of his £1.2m salary is far from generous. For the general public, it may be nominally less than £1m, but it still looks like excess.

The strongest case for trimming Mr Hester's bonus is that the Government should set an example. It is a superficially appealing argument, but one that is full of holes. The first is Mr Hester's contract: given that he is doing his job well, rewriting the terms and conditions cannot be either legally or morally justified. Then there is the likely outcome. Mr Hester does not need the job. If he is not paid in line with his market value then he, and perhaps his board, may take their services elsewhere. With RBS in need of major reform, a cheaper but less competent chief executive is hardly the best way to safeguard taxpayers' money. Even less so because it would achieve so little. However restrained pay might be at RBS, why should Bob Diamond at Barclays, say, take any notice?

Mr Hester is not the only banker under fire. There is also growing clamour for Sir Fred, his predecessor at RBS, to lose his knighthood. Again, the case appears to be simple: Sir Fred was honoured for services to banking; his bank failed at great public expense; therefore, he should be stripped of his gong. But again, there are more questions than answers. While Sir Fred may have been reckless, there is no evidence he broke the law. Meanwhile, others who have – such as Lord Browne (who admitted perjury) and Lord Archer (who went to jail for it) – retain their honours. How is Sir Fred less worthy? And what, then, about other ennobled bankers touched by the meltdown – Sir Victor Blank, the former chairman of Lloyds, for example?

Logic is not at work here. Rather, both Sir Fred and Mr Hester are being made scapegoats. It must stop. Outrage at the excesses that led to the crisis may be understandable. But emotion is being allowed to out-shout reason. Indeed, such unchecked vitriol risks damaging one of Britain's few truly world-class industries. It may be fashionable to blame bankers for all Britain's economic ills, and to talk of the resurgence of manufacturing as if talk were all that was required, but the City of London remains central to our economy and is something of which we should be proud.

That is not to say that bankers' pay is not grossly out of kilter. But it is not up to the Government to remedy it. The problem with banking is neither Sir Fred nor Mr Hester; it is the culture of the industry as a whole. As such, change can come only from within. That means regulation and reform, via the Bank of England, the Financial Services Authority and its successors. Not as eye-catching as a bust-up over Mr Hester, of course, nor with the same political dividend as cutting Fred the Shred down to size. But it is the only rational course. And what Britain's banks need more than anything is a dose of rationality.

React Now

Latest stories from i100
iJobs Job Widget
iJobs General

Recruitment Genius: Female Support Workers / Carers - From £8.00 per hour

£8 - £12 per hour: Recruitment Genius: To assist a young family with the care ...

Recruitment Genius: Customer Service Executive

£20000 per annum: Recruitment Genius: A Customer Service Executive is required...

Argyll Scott International: Commercial Finance Manager

£55000 - £70000 per annum: Argyll Scott International: My client, a world lead...

Argyll Scott International: Commercial Finance Manager

Negotiable: Argyll Scott International: My client, a world leading services pr...

Day In a Page

Read Next
Police officers attempt to stop illegal migrants from jumping onto trucks headed for Britain in the northeastern French port of Calais on October 29, 2014  

Tighter security in Calais won’t solve the problem

Nigel Morris
 

Football needs its Martin Luther moment, and soon

Boyd Tonkin
US immigration: President Obama ready to press ahead with long-promised plan to overhaul 'broken system' - but will it get past a Republican-controlled Congress?

Immigration: Obama's final frontier

The President is ready to press ahead with the long-promised plan to overhaul America's 'broken system' - but will it get past a Republican-controlled Congress?
Bill Cosby rape allegations explained: Why are these allegations coming out now? Why didn’t these women come forward earlier? And why has nobody taken legal action?

Bill Cosby rape allegations explained

Why are these allegations coming out now? Why has nobody taken legal action? And what happens next for the man once thought of as 'America's Dad'
Four years of excruciating seizures caused by the 1cm tapeworm found burrowing through a man's brain

You know that headache you’ve got?

Four years of excruciating seizures caused by the 1cm tapeworm found burrowing through a man's brain
Travelling to work by scooter is faster than walking and less sweaty than cycling, so why aren’t we all doing it?

Scoot commute

Travelling to work by scooter is faster than walking and less sweaty than cycling, so why aren’t we all doing it?
Paul Robeson: The story of how an American icon was driven to death to be told in film

The Paul Robeson story

How an American icon was driven to death to be told in film
10 best satellite navigation systems

Never get lost again: 10 best satellite navigation systems

Keep your vehicle going in the right direction with a clever device
Paul Scholes column: England must learn to keep possession and dictate games before they are exposed by the likes of Germany and Brazil

Paul Scholes column

England must learn to keep possession and dictate games before they are exposed by the likes of Germany and Brazil
Michael Dawson: I’ll thank Spurs after we win says defender as he prepares to return with Hull

Michael Dawson: I’ll thank Spurs after we win

Hull defender faces his struggling former club on Sunday ready to show what they are missing. But he says he will always be grateful to Tottenham
Frank Warren column: Dr Wu has big plans for the professionals yet he should stick to the amateur game

Frank Warren column

Dr Wu has big plans for the professionals yet he should stick to the amateur game
Synagogue attack: Fear unites both sides of Jerusalem as minister warns restoring quiet could take 'months'

Terror unites Jerusalem after synagogue attack

Rising violence and increased police patrols have left residents of all faiths looking over their shoulders
Medecins sans Frontieres: The Ebola crisis has them in the headlines, but their work goes far beyond West Africa

'How do you carry on? You have to...'

The Ebola crisis has Medecins sans Frontieres in the headlines, but their work goes far beyond West Africa
Isis extends its deadly reach with suicide bombing in Kurdish capital

Isis extends its deadly reach with suicide bombing in Kurdish capital

Residents in what was Iraq’s safest city fear an increase in jihadist attacks, reports Patrick Cockburn
Underwater photography competition winners 2014 - in pictures

'Mysterious and inviting' shot of diver wins photography competition

Stunning image of cenote in Mexico takes top prize
Sir John Major: Negative West End portrayals of politicians put people off voting

Sir John Major hits out at theatres

Negative West End portrayals of politicians put people off voting
Kicking Barbie's butt: How the growth of 3D printing enabled me to make an army of custom-made figurines

Kicking Barbie's butt

How the growth of 3D printing enabled toy-designer to make an army of custom-made figurines