We have every right to be angry with the bankers

Executives who wrecked rock-solid institutions walked away with millions – leaving us to pay for their folly, says Philip Johnston

By Philip Johnston

Before the internet age, it was a rite of passage, a feeling that you had finally grown up and were considered responsible and trustworthy. As children, many of us might have had savings accounts or a few pounds in a building society deposited by an ageing aunt.

But to get one's first cheque book was something special. Mine had the words National Westminster Bank written on the front, an imprimatur that could hardly have sounded more rock solid, British to the core, a guarantee of probity and quiet competence.

In those days, banks were forbidding places; there were no open plan offices. A visit to the bank manager, especially for an impecunious student trying to explain a £20 overdraft, was a terrifying experience conducted in a sternly avuncular manner from behind a large desk.

We all knew that such a world had disappeared. But it was none the less astonishing to wake on Monday morning to discover that the Royal Bank of Scotland – my bank, or at least the NatWest bit of it – had posted the biggest loss in British corporate history.

Nor did it take long for the shock to give way to fury. Charles Dickens captured the feeling well after the collapse of Merdle's bank in Little Dorrit: "The air was laden with a heavy muttering of the name of Merdle, coupled with every form of execration."

Well, there were a few execrations in my own household and doubtless in many others across the country. Both curses and questions. How could this have happened?

How is it possible to rack up a loss of £28 billion and yet be worth just £8 billion? What happened to the RBS share of the £37 billion shelled out by taxpayers last October to recapitalise the banking system? What possessed the executives of RBS to buy a Dutch financial institution for way over the odds even as the Northern Rock fiasco was unfolding?

Beyond the sheer incredulity, there is anger that the people responsible have cushioned themselves financially against the privations that their recklessness will induce in millions of others. The people at the top may lose their jobs, but they have already paid themselves so much in bonuses and struck such lucrative pension deals that they can retire in luxury while the rest of us face penury.

Extraordinarily, the vast bonuses were paid for what at the time was hailed as success but now turns out to be abject failure. Do they get returned, along with the knighthoods and gongs?

For those of us who did not know what a derivative was until a few months ago and had only a vague idea that Sir Fred Goodwin was "something in the City", these are revelatory times.

It was evident from the steady flow of letters offering to lend money and urging us to take out new credit cards (all of which went into the bin in our house) that the banks were on a credit binge and that many people were being tempted to join in.

But surely, we all thought, they must know what they are doing. Even the near-collapse of Northern Rock after the first run on a bank since the mid-19th century, seemed like an isolated example of a badly run institution that had been led to the edge by incompetent and foolhardy executives and had to be rescued by the Government.

At the time, some cynical observers suggested that if it had been Southern Rock based in Guildford, it would have been allowed to go to the wall. But it was a big employer and an iconic institution in Labour's north-east heartland, so it had to be saved. But at least it was one-off, wasn't it? The other banks could not possibly be in the same leaky boat.

The discovery that they were sinking too has been more than a shock; it has been a betrayal. Their recklessness has bordered on the criminal. One figure from the Bank of England's financial stability report last October exemplifies the enormity of their folly. In 2000, the amount of money held on deposit in British banks and the amount they were lending was roughly comparable.

Last year, they were lending £700 billion more than they were receiving. This was the mother of all bubbles, yet the bank bosses kept inflating it, egged on by the Government, the Bank of England, the so-called regulators and, let's be frank, by those of us who borrowed way beyond our means.

In its report, the Bank said: "The seeds of this boom can be traced back to the development of financial and trade imbalances among the major economies over the past decade. Increased borrowing in a number of developed countries was in part financed with inflows of foreign capital, leading to greater integration in international capital markets. Benign economic conditions helped anchor expectations of continued stability. This, along with rising asset prices and low global real interest rates, boosted the demand for and supply of credit in a number of developed economies.

It added: "Over time, banks took on progressively more credit risk by lending to, for example, households with high loan to income ratios, leveraged buy-out firms and, in the United States, to the sub-prime sector."

There you have it in a nutshell. When Gordon Brown says that it is all the fault of the Americans, nobody forced the British banks to lend to them. And it is not only the bankers we want to see on their way to the guillotine: they should be joined by the regulators who either turned a blind eye to what was happening or were simply incapable of finding out. Were they knaves or fools?

Then there are the non-executive directors of the bank boards, happily trousering their fees without ever asking any difficult questions or calling a halt to the madcap expansion of credit.

And what about the government ministers who are trying to blame everyone but themselves, yet who presided over the economic policies that allowed this profligacy to flourish. They should be joined on the tumbrels by the central bankers whose handling of monetary policy would have been just as effectively conducted using a crystal ball and a Ouija board.

But pride of place must go to the bank bosses: to Adam Applegarth, 46, who took Northern Rock over the edge and still walked away with a severance deal worth £63,000 a month and who has a pension fund worth more than £2 million from which he can start drawing at 55; to Andy Hornby, who was paid £630,000 in 2007 to run HBOS, augmented by an ''incentive'' of £1.7 million, and who drove it into the wall; and to Sir Fred Goodwin, chief executive of RBS, who was paid about
£30 million in his 10 years with the busted company and left with a pension pot worth £8.4 million.

Between 2003 and 2007, the basic pay and cash bonuses (excluding share-based payments) of just five bank chief executives totalled over £52 million.

Even though the banks are virtually nationalised, some executives still have expectations of high salaries and bonus "incentives", as though the pay is not enough. Even those for whom the party is over managed to get out with what was left of the champagne and canapés. They will be all right.

The rest of us who had shares in the banks that are now worthless or whose pensions were tied to their value will not be so lucky.

In addition, the wider economy is suffering, the pound is sliding so fast that one international financier yesterday said sterling was "finished", and we no longer have enough money to underpin the economy.

We are, as a nation, virtually bankrupt; and the potential personal liability in future taxes is, on average, more than most people earn in a year.

The age of excess is over and an uncertain future awaits. Yet those who were responsible will be insulated from its worst impact. No wonder we are angry. Once more, as in Little Dorrit, the air is laden with every form of execration.