Review urges tougher bank governance

By Huw Jones

LONDON (Reuters) - Banks in Britain who don't comply with what would be the toughest remuneration regime in the world face being held to account by their regulators, the author of a government-sponsored review said on Thursday.

The worst financial crisis since the 1930s forced Britain to tap 1.3 trillion pounds of taxpayer money to nationalise two banks, Northern Rock and Bradford & Bingley, arrange a shotgun wedding of Lloyds and HBOS, and take a majority stake in RBS.

David Walker, a former chairman of Morgan Stanley bank's international unit, published 39 recommendations for changes in the way banks are run, from pay policies to selecting board members, in a bid to apply lessons from the credit crunch.

He noted widespread failures in bank governance but rejected the need for legislation despite critics who warn that when the boom times return, warnings about risk will be drowned out.

"Any bank which fails to conform with these recommendations if they are all adopted is going to be digging a big hole for itself," Walker told Reuters.

"Those who neither comply nor explain are going to have to go through the wringer with the Financial Services Authority. It's just daft to say this is voluntary. You comply or you are in deep trouble," Walker said.

British Bankers' Association Chief Executive Angela Knight said some banks have made the recommended changes and the next step was to get similar high standards adopted globally.

Walker said the recommendations should be taken in tandem with measures being taken by the FSA to stop banks betting the shop, such as far higher capital and liquidity requirements.