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6th September 2011

Bank governance changes required

Two British members of parliament, Matthew Hancock and Nadhim Zahawi have written a new book about the banking crisis, "Masters of Nothing: How the Crash Will Happen Again Unless We Understand Human Nature".


Hancock was a former Bank of England economist and is close to the Chancellor of the Exchequer, George Osborne - to the extent that the book launch will be held today at 11 Downing Street, the Chancellor's official residence. Zahawi was the former CEO of YouGov, a leading UK market research company,


The book argues that changes in governance are required if a further banking crisis is to be avoided. They use various examples to suggest that it is wrong to believe that people, and in particular bank executives, always act in a rational way thinking of their self interest and the long term good of the bank.


The authors argue for a new charge of professional gross negligence be created for senior executives of Systemically Important Financial Institutions. One comparison they make is that the owner of a food shop that does not follow food hygiene laws can be imprisoned and yet no head of a bank has been sent to prison despite the major consequence of their actions.


They also point to situations where the board has appeared afraid of the Chief Executive and never challenged the CEO's decisions. The book contains many examples relating to Sir Fred Goodwin and the Royal Bank of Scotland. The publication follows closely on the autobiography of Nigel Lawson who also had harsh things to say about the Chief Executives of both Royal Bank of Scotland and HBOS at the time of their collapse. It has been suggested before, and supported by Lawson that neither chief executive had appreciated the seriousness of their own bank's financial situation just days before the bank's had to be propped up with billions of aid.


"Masters of Nothing: How the Crash Will Happen Again Unless We Understand Human Nature" by Matthew Hancock and Nadhim Zahawi is published today by Biteback Publishing.