IN February, Chancellor George Osborne, announced that this would be the year he would "reset the banking system".
His response to the Parliamentary Commission on Banking Standards (PCBS) is the litmus test of his bold claim.
He did not fail on the two headline recommendations of the commission that put a greater duty of personal responsibility on senior bankers. Those guilty of the new offence of reckless misconduct will be liable for criminal penalties including jail sentences. Bonus payments will also be more tightly controlled by being allowed to be deferred by up to 10 years and clawed back completely if the bank has to be bailed out.
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Both these measures will be heartily approved by the taxpayer, who has been forced to contribute billions to rescue the imploding banking industry but powerless to halt the continued payment of large bonuses to top executives. Although populist, they should not be seen as mere banker-bashing; there will also be a new system for approving bankers appointed to the most senior positions who have been given clear responsibilities designed to increase accountability that was so patently lacking as the disasters at Northern Rock, HBoS and RBS revealed.
In addition, the new Prudential Regulation Authority, responsible for ensuring excessive risks do not accumulate, will be given an additional role to ensure competition among the banks. This will be welcomed by consumers if it makes it easier to switch accounts to a rival bank.
Having set up the commission to examine ways of raising banking standards in the wake of the financial crisis and the scandal over rigging the inter-bank lending rate, the Chancellor might have been expected to embrace its recommendations.
Under the chairmanship of Andrew Tyrie, a former adviser to Conservative Chancellors Nigel Lawson and John Major who proved a tough cross-examiner of the banking business, the commission revealed that malpractice, amounting to "simple fraud" in Mr Tyrie's view, was pervasive. Mr Osborne has accepted that cultural reform will be necessary to move the banking sector from rescue to recovery. But the measures he has agreed to add to the Banking Reform Bill amount to no more than a step in that direction.
Just as significant are those he has rejected. They include the commission's call for a much tougher leverage ratio for banks, requiring them to increase the amount of capital they hold against loans and investments. By rejecting this, the Government risks setting back the pace of restoring trust in the banks.
Similarly, by refusing the commission's call to abolish UK Financial Investments (UKFI), the holding company for the Government stakes in RBS and Lloyds, which it described as a fig leaf for political intervention in the banking sector, the Chancellor will fail to allay fears of political manipulation.
Although the Government will consider splitting the 81% publicly-owned RBS into a "good" bank that could be quickly sold back to the private sector, and a "bad" bank to be retained to deal with existing problematic loans, it proposes weakening the commission's recommendation for a specific power to ring-fence retail banks from their investment trading arms. By cherry-picking the commission's recommendations, Mr Osborne risks failing to achieve his stated aim of restoring the trust in banks that is so fundamental to the health of the economy.
He might be accused of reckless misconduct.