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Bankslaughter

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There are criminal investigations into the events of the recent financial crisis. The two managers of the Bear Stearns hedge funds that blew up in the summer of 2007 have been indicted in Brooklyn, and more cases in other venues and more charges against executives will certainly be brought.

Yet there is still a palpable public frustration that the wheels of justice are moving too slowly or that it will be too difficult to prove fraud when really recklesness or incompetence were to blame. Several commentators in Britain have suggested that a lower standard of criminal culpability be established when banks die. There is a name for this crime: bankslaughter.

Paul Collier in the Guardian writes:

With bankslaughter, when the bank blows up – even if it is a decade later – a criminal investigation traces back to determine whether crucial decisions were reckless. If a reasonable banker faced with the information available at the time would not have taken those risks, the person responsible is dragged off the golf course and jailed.

Once bankslaughter was on the books, bonuses would be less dangerous. Managers would have to weigh the balance between risk and return and take defensible decisions. I doubt hyper-caution would be a problem: the overly cautious would not get bonuses. Surely we can rely on our bankers to exhibit the necessary degree of greed.

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