Senior bankers should be jailed for reckless misconduct, a keenly-awaited parliamentary commission into the collapse of the banking system recommends.
Chancellor George Osborne welcomed the report. He said on Twitter: “V impressive work. Will help our plan for stronger safer banks”.
The Parliamentary Commission on Banking Standards, which was set up by Mr Osborne last year, concluded that Britain’s senior bankers should be held personally responsible for malpractice, with a new criminal offence for reckless misconduct in the management of a bank.
The report also called for bankers to be licensed and to sign up to a set of banking standards rules.
Meanwhile, amid fresh pressure on the government to split up the state owned Royal Bank of Scotland, the commission suggested it could be necessary to hive off the bank’s toxic assets into a “bad” bank.
The Chancellor is expected to ask for more detailed analysis of how this might work.
George Osborne is due to shed light on his plans for Britain’s state-owned banks on Wednesday. He is expected to use his annual Mansion House speech to suggest that a sell-off of the taxpayer’s 40 per cent stake in Lloyds could begin as early as 2015.
RBS bosses recently insisted it would be fit for a return to the private sector within a year, but there are fears that would mean a big hit for the public purse.
The bank’s shares are trading at around 320p – still significantly below the 500p break-even price for the government on its £45 billion bailout.
The commission said the strategy for returning RBS to the private sector “has been allowed to run for five years”, but added: “It is time to look at this afresh.”
Tory MP Andrew Tyrie, the commission chairman, urged the government to put “political considerations” to one side and said it must launch an immediate review of the benefits of splitting RBS.
Under such a plan, the bank’s bad debts would be hived off to free the “good” bank to lend more to businesses and boost the economy.
Mr Tyrie said: “The current state of RBS creates problems for banking competition and for the British economy. Further restructuring may well be needed. The government may need to be bold.”
Amid mounting concerns over the level of direct government intervention in the management of the state-backed banks, the commission concluded that UK Financial Investments (UKFI) was increasingly being used as a “fig leaf” to disguise the level of control and should be wound up.
On Tuesday Mr Osborne denied forcing Stephen Hester to quit as head of RBS, but the commission said in its report the government has interfered in the running of the two partly state-owned banks, particularly RBS.
“On occasions it has done so directly, on others it appears to have acted indirectly, using UKFI as its proxy,” it added.
The report outlined a series of recommendations to raise standards in the banking sector following the Libor rate-rigging scandal.
Shadow chancellor Ed Balls said: “On the future of RBS and Lloyds, it is vital that government decisions are driven by the best interests of the British taxpayer and the wider economy, not a political timetable.
“On RBS in particular, David Cameron and George Osborne must resist the temptation for a loss-making fire sale at the current share price which would add billions to the national debt. As Stephen Hester said last week, RBS is capable of being worth more than what the taxpayer paid.
“Instead the government must look at the whole range of options for the future of RBS to ensure the taxpayer gets its money back and there is no return to business as usual. This should include looking at the case for splitting retail and investment banking at RBS, as the commission proposes.”