Over the past week or two a new regulatory proposal laid out in the op-ed pages of The Guardian has gathered steam, and we thought it was time to share it with BankThink´s readers. The idea is to make bank mismanagement a criminal offense, something similar to negligent homicide. If a bank founders, its upper management can be investigated for recklessness.
The man behind the "Bankslaughter" plan, Guardian columnist Paul Collier, proposed the British government lay out a set of criminal laws governing bank management. "Fear of jail would discourage excessive risk," he reasoned. A trial of managers of a failed bank would unfold similarly to that of a person accused of manslaughter. Intent to harm wouldn´t be a factor in the case; rather the question would be whether the executives managed the bank irresponsibly.
Since his column ran, other commentators have joined the discussion. Reuters´ Felix Salmon gave the idea a thumbs up on his blog this week, while blogger John Carney called it "a terrible idea that needs to be nipped in the bud before some populist lawmaker tries to make a garden party out of it." Then the braniacs over at The Baseline Scenario (well, one of them-James Kwak) walked readers through the possibilities for translating the "bankslaughter" to fit into the American legal system.
While BankThink is withholding judgment about whether "bankslaughter" is a cool or revolting idea, we have to admit that Kwak makes a convincing argument for its compatibility with well-established legal practices here in the U.S., namely torts.
Readers, it´s up to you: Could holding bankers criminally liable for negligence in court work? Would the threat of a criminal conviction be effectively scarier than the constant threat of civil lawsuits with monetary penalties? And how has criminal prosecution changed Wall Street? Despite the fact that one can be sent to jail for insider trading, for instance, the practice endures. Just sayin´.....