U.K. Lawmaker Seeks to Make Bank Directors Liable for Losses

A lawmaker from Prime Minister David Cameron’s Conservative Party proposed a bill in Parliament today to make directors of U.K. banks personally liable for losses made by the institutions.

Steve Baker wants to enforce unlimited personal liability on bank directors and require them to post personal bonds as additional capital. His draft legislation would see their bonuses treated as bank capital and provide for financial institutions to become insolvent. Baker, backed by three other Conservative lawmakers, gained approval for the Financial Institutions (Reform) Bill to have a second reading on April 27 in the House of Commons in London.

Baker’s move comes amid growing disquiet among lawmakers and the public about the cost to the taxpayer of rescuing Royal Bank of Scotland Group Plc, Lloyds Banking Group Plc and Northern Rock Plc. RBS Chief Executive Officer Stephen Hester was forced to forego his bonus in January and his predecessor, Fred Goodwin, was stripped of his knighthood for his role in leading the bank into the world’s biggest bailout.

“If the cost of their actions are forced onto others through state power, that is an injustice,” Baker, who represents Wycombe, northwest of London told the Commons. “Those who stand to gain also bear the risk of their actions.”

The government is putting forward legislation to prevent future bailouts by forcing banks to separate their investment and consumer businesses.

Bills put forward by individual lawmakers stand little chance of being passed. The process is used more as a means of making a point on the need to change the law and to test other lawmakers’ opinion as there is little time available for debate, according to an explanation on Parliament’s website.