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* Failed bankers should face criminal sanctions-report
* Failed bankers should lose pensions, outstandingbonuses-report
* Government must consider range of strategies forRBS-report
* "Trust in banking has fallen to a new low"-Commission'schairman
By Matt Scuffham
LONDON, June 19 (Reuters) - Britain should introduce lawsmaking it possible to jail "reckless" bankers and claw back pastbonus and pension awards, an influential panel of lawmakers saidon Wednesday.
The Parliamentary Commission on Banking Standards, set up bythe government last year after Barclays was fined overthe manipulation of global interest rate benchmarks, said deeplapses in standards had been commonplace and recent scandals hadexposed "shocking and widespread malpractice".
"Taxpayers and customers have lost out. The economy hassuffered. The reputation of the financial sector has beengravely damaged. Trust in banking has fallen to a new low," thecommission's chairman Andrew Tyrie said in a 500-page report.
The cross-party group, which includes former British financeminister Nigel Lawson and Justin Welby, head of the Anglicanchurch, recommended senior bankers are held personallyresponsible and regulators granted greater powers.
The commission is recommending a new criminal offence of"reckless misconduct in the management of a bank" which wouldcarry a jail sentence for the most serious cases.
"Senior bankers who seriously damage their banks or puttaxpayers' money at risk can expect to be fined, banned from theindustry, or, in the worst cases, go to jail," said Tyrie.
The commission recommended the industry's 'approved persons'regime be scrapped and replaced with two new registers - one forsenior bankers and one for other bank employees. It said the newsystem would ensure the most important responsibilities withinbanks were assigned to specific individuals.
The 'Senior Persons Regime' would enable those responsiblefor failures to be identified more easily and provide a strongerbasis for action to be taken against them, the report said.
On pay, the commission recommended that the industry adopt anew remuneration code to better balance risk and reward withmore pay deferred over longer periods of time.
The regulator would be granted a new power enabling it tocancel all bonuses and pension rights not yet paid out to seniorexecutives in the event of their banks needing taxpayer support.
There was a political outcry when Fred Goodwin, the formerchief executive of Royal Bank of Scotland left the bankafter it was rescued by the government with a 703,000-poundannual pension, worth almost 17 million pounds. He later agreedto take a 2.7 million-pound lump sum and 342,500 pounds a year.
Britain's finance ministry welcomed the recommendations andsaid it would make a formal response in the next month.
"Where legislation is needed we have said we will support itand the banking bill currently before parliament can be amendedto ensure they are quickly enacted," it said.
The Financial Conduct Authority, the new financial servicesindustry regulator, said it was "learning from the regulatorymistakes of the past", having taken over the regulation of UKbanks in April.
RBS BREAK-UP?
The commission also urged the government to immediatelyconsider a range of strategies for what it should do with RoyalBank of Scotland (RBS), which has been 81 percent state-ownedsince its bail-out in 2008, including a possible break-up.
Some commission members, including Lawson, have advocatedhiving off RBS's toxic loans into a 'bad bank' leaving theremaining 'good bank' better able to lend to British businessesand households. But Finance Minister George Osborne said such amove would be complicated, time consuming and costly.
The report said the government had interfered in the runningof RBS and Lloyds Banking Group, in which it holds a 39percent stake, and said RBS was being held back by having thegovernment as its main shareholder.
The level of the government's influence over RBS has comeunder scrutiny since Chief Executive Stephen Hester was oustedlast week with the Treasury's approval.
Osborne is set to lay out strategies for returning RBS andLloyds Banking Group to full private ownership in hisannual speech to financiers in the City of London on Wednesday.
Labour's finance spokesman Ed Balls said Osborne must resistthe temptation for a "loss-making firesale" of RBS at thecurrent share price, which would add billions of pounds toBritain's national debt.
Commission member Pat McFadden told Reuters the commissiondid "push its remit" in considering the future of RBS. There has been media speculation that the issue caused friction amongcommission members, with some objecting to recommendations beingmade on an issue which it had taken little evidence on.
"We've come out in the end in a sensible position of sayingthat before we recommend a sharp change from the currentstrategy being pursued at the bank, we need to do the work," hetold Reuters. The commission has asked the Treasury to produce acost-benefit analysis for breaking up the bank by September.
