Tuesday 23 October 2018

If bankers are to lose their heads so too should lax politicians

Mismanaging a financial institution to the point of collapse is no more an offence than mismanaging a butchery or a bakery to the same point, writes Colm McCarthy

Central bank: Proposals that company law and regulators’ powers should be expanded. Photo: PA
Central bank: Proposals that company law and regulators’ powers should be expanded. Photo: PA
Colm McCarthy

Colm McCarthy

Proposals from the Central Bank last week that company law and regulators' powers should be expanded to include tailor-made sanctions for managers of failing banks need some justification. Why pick on banks? Do not the market, and the universal sanctions of the corporate code, contain sufficient penalties for errant executives?

Any commercial company that goes bust inflicts collateral damage on innocent bystanders. The company's shareholders lose, the creditors lose and employees and pensioners take a hit. Sometimes it can be just down to bad luck and the vagaries of business life. But quite often the boards and management get it badly wrong. Of course boards and management lose too, both jobs and reputation, and usually lose more than many of the bystanders.

But banks are different from ordinary commercial firms: the bystanders, in a major banking bust, include just about every citizen, even future generations. The portion of total losses absorbed by boards and management when a bank goes down is often fairly modest. Governments almost always feel impelled to rescue failing banks and to revive faltering banking systems. No such indulgence is generally available to the butcher, the baker or the candlestick maker. Their failures are regretted but rarely reversed: there are never enough casualties to justify the deployment of the State's finances.

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