Britain's ring-fence a new hurdle for bank directors

Sun Oct 12, 2014 4:17am EDT
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By Steve Slater and Carmel Crimmins

LONDON/DUBLIN (Reuters) - Britain's major lenders may find it hard to hire dozens of directors that are required as part of a radical reshape of the industry aimed at protecting it from future investment bank crashes.

Britain wants banks such as HSBC, Barclays and the UK arm of Spain's Santander to ring fence their retail units from their wholesale operations, including creating a separate board for their retail divisions that would be independent of the parent group.

But the banks may struggle to fill these boards because the directors will be more exposed if things go wrong, particularly under new rules which will make it easier for the regulator to hold senior bankers to account for misconduct, including the threat of jail for reckless decisions that cause a bank to fail.

“I think it may be hard to find directors for these ring fenced banks," said Simon Gleeson, a partner at UK law firm Clifford Chance. “You’re practically volunteering for the role of scapegoat."

“It almost feels as if the ring fenced bank is going to operate on a kind of strict liability level because having been set up to be failsafe, if it does fail, regulators, politicians and others will be very, very incensed.”

Investment banks are viewed as riskier because they make bets on markets but retail banks are also sources of instability. Many of the banks that got into trouble during the global financial crisis were retail banks that provided loans to finance home purchases such as Britain's HBOS, which was taken over by Lloyds.

Britain wants to make directors more accountable and responsible for their actions, aiming to prevent a repeat of the 2007-09 financial crisis when taxpayers spent tens of billions of pounds bailing out major banks whose directors walked away with their pensions intact.

The threat of prison will be remote and tougher rules are necessary, bankers and headhunters admit, but it will add another reason to avoid bank boards, already shunned by some qualified candidates because of the increased workload and complexity of being a financial services sector director following the crash.   Continued...

Financial offices of Canary Wharf are seen behind visitors to the O2 arena enjoying a fairground ride in east London November 23, 2011.   REUTERS/Toby Melville