Darling laments that the international call to action made in the immediate aftermath of the crisis has lost urgency as memories of the panic fades. Darling said: “My biggest regret is that the collective will that was there in 2008-09 had disappeared by 2010.”
Since the crisis, the reputation of bankers has been damaged even further by a range of scandals such as those over mis-sold payment protection insurance in the UK, the repossessions that followed the US sub-prime mortgage bond debacle and the rigging of Libor rate.
Douglas Flint, chairman of HSBC — which was itself hit with a ￡1.2 billion fine for breaching money laundering rules in the US — said the problems are more deep-seated: “The focus has been on capital because we can measure it. However, the real issue is about culture.”
Attempts to change that culture focused on the bonus system. When the crisis hit, the finger was pointed directly at bankers’ bonuses, which had encouraged a culture of risk-taking: bankers stood to earn huge potential rewards, but with no penalty for making losses and no threat of losing payments if deals went bad years later.
The City regulator was one of the first in Europe to stop all-cash bonuses and demand that a proportion be paid in shares and spread over three years — the rationale being that this will make bankers think more carefully about their long-term actions.
Even so, in the first official audit of City pay, published in 2010, the regulator revealed that more than 2,800 top financial staff had been paid more than ￡1 million in the year after the bailouts.
Since then, data published by the European Banking Authority has shown that more than 2,400 bankers were paid more than 1 million euros in 2011. Data from the Office for National Statistics, which collects and publishes statistics related to the economy, population and society of England and Wales, shows that bonuses in the finance and insurance sector are heading back towards levels seen during the 2006-2007 boom, when they reached close to ￡20 billion. And in the year to April this year, some ￡14 billion was paid out in bonuses in the financial sector.
However, another way to change banking culture is to change the ways banks operate. The Vickers proposals currently weaving their way through parliament require a ringfence to be erected between high street banks and “casino” investment banks. HSBC’s Flint said this will show exactly where the risks lie. Bank of England deputy governor Andrew Bailey welcomes the ringfence plan but adds: “It’s not the answer on its own.”
While the Vickers proposals were more radical than many had expected after the May 2010 election, they are moderate compared with the Glass-Steagall reforms of the post-Depression era in the US, where full separation between investment banks and high street banks was mandatory — a reform that lasted until 1999, when lobbying by investment banks saw it swept away.