U.K. Mulls More Managerial Liability In Banks

A banking law reform bill in the U.K. would impose strict unlimited liability on members of the boards of directors of banks, require them to be bonded, and require that bank employee bonuses in the form of what we would call non-qualified deferred compensation with a Rabbi's trust for five years before being disbursed. In other words, the bonuses must be held in a trust subject to the general liabilities of the bank for five years before being distributed.

A link at Marginal Revolution calls it "unlimited liabilty" but it really isn't. The idea of subjecting someone who is a mere shareholder in a corporation with no involvement in the business of the company to liability beyond the investment is long dead. But, expanding the scope of liability for managers and directors of enterprises is a flourishing trend on both sides of the pond, after reaching a low point probably sometime around the early 1980s, although this bill is exceptional for imposing strict liability, rather than liability based on serious fault based grounds on directors, and because it likewise subjects employee bonuses to strict liability.

The bill also provides that banks can't have more than 97% leverage, creates a fast track bankruptcy process for insolvent banks, and devotes additional resources to enforcing banking laws.

Of course, the bill may just discourage rich people from serving on the corporate boards of banks and shift bank compensation from a heavily bonus based system to one based upon high current compensation.