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Are damning reports on pre-crisis banks useful, or a sideshow?

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It's been Stampede Week in the City of London but instead of bucking broncos and steers, the animals in the rodeo have been bankers, lassoed, hobbled and branded as greedy and incompetent by two separate enquiries. The Parliamentary Commission on Banking Standards today published a report which calls on City regulators to ban three former board directors of HBOS from running financial companies. The Commission's damning verdict on the HBOS three emerged a day after an internal report commissioned by Barclays Bank PLC, condemned the bank's extravagant pay and warped "culture of entitlement" which left Barclays' top 70 staff "oblivious to reality."

HBOS came a cropper in 2008 after a reckless lending spree which, according to the Commission left 10 per cent of its loan book beyond recovery. The bank, which was established with the merger of two lenders, Halifax and Bank of Scotland, was then folded into Lloyds in an emergency takeover which cost the taxpayer some £28-billion ($43.7-billion).

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The Commission fingers the former chief executives Sir James Crosby and Andrew Hornby for criticism and throws the book at Lord Stevenson, the former chairman of HBOS, who "in particular has shown himself incapable of facing the realities of what placed the bank in jeopardy."

Just like a rodeo, it's an enjoyable spectacle, not least when an official parliamentary body tells us that the posh suits were just dumb oxen stampeding over a cliff, or in the case of the HBOS bosses, "presiding over a colossal failure." Still, the question is whether this is more than entertainment and whether we really learn how to avoid another HBOS so miscalculating risk that an entire nation finds itself in penury for years, absorbing banking losses. Like Lehman Brothers and Northern Rock, HBOS borrowed heavily in the wholesale markets to fuel expansion, putting depositors at risk. But five years after the financial crash, we still don't have a good formula that allows banks to lend both competitively and entirely safely.

Is it not time to admit that this is impossible? The problem lies in the notion of "deposit," which the ordinary person views as safekeeping but the bank sees as a loan. If we are to continue to support institutions that offer genuine "desposit" accounts where money back is guaranteed by the state, then we need institutions that lend without leverage, have huge balance sheets and produce minimal growth. That doesn't sound like a bank that could provide the risk captial needed to finance a thriving economy. The latter is a different job; perhaps separating them is the solution.

Carl Mortished is a contributor to ROB Insight, the business commentary service available to Globe Unlimited subscribers. Click here for more of his Insights.

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