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Recklessly Jailing Bankers

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The belief that bankers haven't paid an adequate price for their role in the financial crisis has been an important factor in policy debates here and abroad. Many people want to see big fines and preferably prison sentences for financial industry participants. People who intentionally broke the law should be held responsible, but the government's cases need to be grounded in good facts and solid legal theories. Moreover, reform measures designed to toughen sanctions need to be considered with care. Lawmakers should consider the ramifications those measures will have on the ability of banks to innovate and serve their customers.

The United Kingdom runs the risk of going too far in upcoming legislation. Based on recommendations from its Parliamentary Commission on Banking Standards, the government plans to impose "criminal sanctions for reckless misconduct in the management of a bank" in order to "sharpen directors' focus on their personal responsibilities and duties in respect of the firm." In addition, the government plans to shift the burden of proof for senior bank officials. "Bank bosses" will be responsible for "prudential and conduct failures" unless they can "demonstrate that they took all reasonable steps to prevent the contravention occurring or continuing in the part of the business for which they have responsibility." That makes it a lot easier for the government to win cases.

These changes--depending, of course, on how they are crafted--could make it very difficult for honest bankers to run their businesses with an eye towards meeting consumer needs. Far from sharpening their focus, the legislative changes could shift bankers' focus to avoiding future personal liability. The high stakes of making a business mistake could impede bankers' day-to-day work without contributing to the financial system's safety.

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Rafael Mangual
Project Manager,
Legal Policy

Manhattan Institute


Published by the Manhattan Institute

The Manhattan Insitute's Center for Legal Policy.