Nonexecs prepared to be unpopular are needed on banking boards
London — 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, a senior British legislator said on Wednesday.
Nonexecutive directors failed to ask bank bosses tough questions before the 2007-09 crisis, said Nicky Morgan, who was elected as chairperson of Parliament’s treasury select committee in July, and that remains an issue today.
"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 had changed since the crisis.
Companies hire nonexecutives from the same mould as existing members, the former minister for women and equalities said.
"There is still far too much recruitment in the board’s own image," said Morgan, a member the governing Conservative party.
The treasury select 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 marathon sessions to make sure regulators and bankers toe the line.
Under her term, Morgan said the committee would scrutinise the implementation of new rules that require the retail arms of banks from 2019 to be fenced off from riskier investment bank operations, each with its own capital.
"We could do more to quiz the financial policy committee," she added, referring to a new panel at the Bank of England charged with spotting risks as early as possible.
The treasury committee will also look at household debt levels and possibly the rapid growth in car loans, Morgan added.
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 Royal Bank of Scotland (RBS), a bank now controlled by the state, collapse.
Darling said at the debate that 2016’s 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 is a political system so badly fractured that it is ill-equipped to deal with the economic and political crisis Britain now faces 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 that it could pick up their assets more cheaply.
Some companies were so badly scarred by the crisis that they won’t ask banks for help with financing, Morgan said.