Call for shake-up of bank boards
UK politician says greater diversity could avert crises
Banks needed to recruit a wider assortment of nonexecutive directors to their boards to end the kind of groupthink that lay behind the financial crisis, said a senior British MP.
Banks need to recruit a wider assortment of nonexecutive directors to their boards to end the kind of “group think” that lay behind the financial crisis, says a senior British legislator.
Nonexecutive directors failed to ask bank bosses tough questions before the 2007-09 crisis, said Nicky Morgan on Wednesday, and this remains the issue today. The former minister for women and equalities was elected chair of the treasury select committee in July.
“It’s getting the right people on boards, asking the tough questions, to be unpopular with their executive officers,” Morgan told a Resolution Foundation think-tank meeting to debate whether UK banking has changed since the crisis.
Companies hire nonexecutives from the same mould as existing members, said Morgan, a member of the governing Conservative party.
“There is still far too much recruitment in the board’s own image,” she said.
The committee drove through regulatory changes after the crisis and Morgan said those reforms would be reviewed a decade after Northern Rock became the first bank in a century to trigger a run.
“We are going to look at the whole architecture, 10 years on,” Morgan said.
The crisis forced the government to inject billions of pounds into ailing banks, and since then the committee has held long sessions to make sure regulators and bankers toe the line.
Under her term, Morgan said the committee would scrutinise implementation of new rules that require the retail arms of banks to be fenced off from riskier investment bank operations from 2019, each with its own capital.
The committee would also look at household debt levels and possibly the rapid growth in car loans, she said.
Alistair Darling, Britain’s finance minister during the crisis, said the government lost control of the situation for several days and could not let the RBS, a bank now controlled by the state, collapse. Darling said at the debate that the 2016 vote to leave the EU could be traced back to the crisis and ensuing austerity, which left many people traumatised and trust in authorities shaken.
The legacy was a political system so badly fractured that it was ill-equipped to deal with the economic and political crisis Britain now faced because of Brexit, Darling said.
Morgan has already asked the Financial Conduct Authority to publish its report into allegations that RBS’s Global Restructuring Group allowed businesses to go bankrupt so it could pick up their assets more cheaply.
Some companies were so badly scarred by the crisis that they would not ask banks for help with financing, Morgan said.
COMPANIES HIRE NONEXECUTIVES FROM THE SAME MOULD AS EXISTING MEMBERS, SAID MORGAN