Why have no bankers gone to jail?

Taylor, James (2013) Why have no bankers gone to jail? History & Policy.

Abstract

Contrary to the popular image of Victorian Britain as an era of unbridled capitalism, the Victorians took financial transgressions seriously. Legal reforms passed in the second half of the nineteenth century made it possible for bankers to be held criminally responsible for their actions. The prosecutions which became commonplace by the end of the nineteenth century were high-risk and did not always succeed, but they had important economic and social effects. They restored market confidence in times of crisis, established the City of London’s good reputation, and demonstrated the fairness of the criminal justice system. In addition, by punishing transgressions in a highly visible way, prosecutions defused demand for radical structural reforms, thus bolstering rather than undermining free enterprise. The lack of prosecutions following the recent banking crisis is thought to prove the inadequacy of existing laws and the government is therefore proposing to make reckless misconduct in the management of a bank a criminal offence. But it is doubtful whether such a reform would be either viable or necessary. Laws first passed in Victorian Britain define publishing false information to shareholders in prospectuses and balance sheets as fraud. It is easier to gain convictions based on fraudulent misrepresentation than recklessness, and in the past these laws have been successfully used to convict bankers and other directors who were reckless with their shareholders’ money. These laws are still in place, and have been stiffened since 1900, but regulators have shown little willingness to test their applicability in the current crisis. This absence of political will has led to the effective decriminalisation of fraud. This will make it harder to clean up the City, and will foster radical critiques of the criminal justice system in particular and of the state in general.