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

Ashdown Group: Marketing Manager (B2B) - Romford - £40,000 + car

£35000 - £40000 per annum + car and benefits: Ashdown Group: Marketing Manager...

Ashdown Group: Helpdesk Analyst - Devon - £20,000

£18000 - £20000 per annum: Ashdown Group: Helpdesk Analyst - Devon - £20,000 ...

Ashdown Group: Data Scientist - London - £50,000 + bonus

£35000 - £50000 per annum + generous bonus: Ashdown Group: Business Analytics ...

Ashdown Group: IT Project Coordinator (Software Development) - Kingston

£45000 - £50000 per annum: Ashdown Group: IT Project Coordinator (Software Dev...

Day In a Page

Read Next
File: David Cameron offers a toast during a State Dinner in his honour March 14, 2012  

Vote Tory and you’re voting for the rich to get richer and the poor to get poorer

Mark Steel
 

If I were Prime Minister: I'd end the war on drugs

Patrick Hennessey
General Election 2015: ‘We will not sit down with Nicola Sturgeon’, says Ed Balls

'We will not sit down with Nicola Sturgeon'

In an exclusive interview, Ed Balls says he won't negotiate his first Budget with SNP MPs - even if Labour need their votes to secure its passage
VE Day 70th anniversary: How ordinary Britons celebrated the end of war in Europe

How ordinary Britons celebrated VE Day

Our perception of VE Day usually involves crowds of giddy Britons casting off the shackles of war with gay abandon. The truth was more nuanced
They came in with William Caxton's printing press, but typefaces still matter in the digital age

Typefaces still matter in the digital age

A new typeface once took years to create, now thousands are available at the click of a drop-down menu. So why do most of us still rely on the old classics, asks Meg Carter?
Discovery of 'missing link' between the two main life-forms on Earth could explain evolution of animals, say scientists

'Missing link' between Earth's two life-forms found

New microbial species tells us something about our dark past, say scientists
The Pan Am Experience is a 'flight' back to the 1970s that never takes off - at least, not literally

Pan Am Experience: A 'flight' back to the 70s

Tim Walker checks in and checks out a four-hour journey with a difference
Humans aren't alone in indulging in politics - it's everywhere in the animal world

Humans aren't alone in indulging in politics

Voting, mutual back-scratching, coups and charismatic leaders - it's everywhere in the animal world
Crisp sales are in decline - but this tasty trivia might tempt back the turncoats

Crisp sales are in decline

As a nation we're filling up on popcorn and pitta chips and forsaking their potato-based predecessors
Ronald McDonald the muse? Why Banksy, Ron English and Keith Coventry are lovin' Maccy D's

Ronald McDonald the muse

A new wave of artists is taking inspiration from the fast food chain
13 best picnic blankets

13 best picnic blankets

Dine al fresco without the grass stains and damp bottoms with something from our pick of picnic rugs
Barcelona 3 Bayern Munich 0 player ratings: Lionel Messi scores twice - but does he score highest in our ratings?

Barcelona vs Bayern Munich player ratings

Lionel Messi scores twice - but does he score highest in our ratings?
Martin Guptill: Explosive New Zealand batsman who sets the range for Kiwis' big guns

Explosive batsman who sets the range for Kiwis' big guns

Martin Guptill has smashed early runs for Derbyshire and tells Richard Edwards to expect more from the 'freakish' Brendon McCullum and his buoyant team during their tour of England
General Election 2015: Ed Miliband's unlikely journey from hapless geek to heart-throb

Miliband's unlikely journey from hapless geek to heart-throb

He was meant to be Labour's biggest handicap - but has become almost an asset
General Election 2015: A guide to the smaller parties, from the the National Health Action Party to the Church of the Militant Elvis Party

On the margins

From Militant Elvis to Women's Equality: a guide to the underdogs standing in the election
Amr Darrag: Ex-Muslim Brotherhood minister in exile still believes Egypt's military regime can be replaced with 'moderate' Islamic rule

'This is the battle of young Egypt for the future of our country'

Ex-Muslim Brotherhood minister Amr Darrag still believes the opposition can rid Egypt of its military regime and replace it with 'moderate' Islamic rule, he tells Robert Fisk
Why patients must rely less on doctors: Improving our own health is the 'blockbuster drug of the century'

Why patients must rely less on doctors

Improving our own health is the 'blockbuster drug of the century'