Sir David Walker: "Bank boards need to be less friendly"
Bank bonuses should be more closely controlled and non-executive directors should be better trained, according to a government-commissioned report.
The review of the corporate governance of UK banks, by ex-City regulator Sir David Walker, also calls for greater shareholder involvement.
It recommends more transparent pay and bonus structures for all high earners.
Prime Minister Gordon Brown said he thought that the recommendations in the report would be adopted.
The report could lead to a shake up of corporate governance at banks
Speaking to the Commons Liaison Committee, Mr Brown said he supported "wholeheartedly" the proposal that non-executive directors should play a greater role in board-level decision making and defended the government's response to the banking crisis.
He also said the Financial Services Authority (FSA) "will be issuing a revised code on the standards of remuneration".
"To deal with the excess boardroom practices that have shocked people and appalled people and made me angry as well, we are bringing in new rules, first of all about the long-term nature of remuneration and reward, and secondly about proper transparency," he said.
The Conservatives said the government's response to the banking crisis, including the Walker review, had been "totally inadequate".
"It's no good saying bankers need to be better qualified. The bankers who got us into this mess were qualified - the problem was they were inadequately regulated," said shadow financial secretary Mark Hoban.
Vince Cable, Liberal Democrat Treasury spokesman, argued that the recommendations in the report needed to be compulsory.
"If the Walker approach is to have any value, then it has to be obligatory through the FSA and not just on a voluntary basis," he said.
Sir David spoke to banks, institutional investors and experts in remuneration and corporate governance in preparing the report.
"It is clear that governance failures contributed materially to excessive risk-taking in the lead up to the financial crisis. Weaknesses in risk management, board quality and practice and control of remuneration need to be addressed," he concluded.
The report focuses on pay, and bonuses in particular.
There is a widespread call for more transparency in pay. Many star traders, for example, can earn many times more than board members but there is no obligation for them to disclose their bonuses to shareholders.
The bonus culture is seen as encouraging excessive short-term risk taking at banks, which was a major factor in sparking the financial crisis.
Sir David said he was fully prepared for protests about this degree of disclosure on pay from the big banks
And there is genuine concern that big bonuses are making a comeback after US banking giant Goldman Sachs announced earlier this week that it set aside $6.65bn (£4.1bn) between April and May, more than $225,000 for each employee, for pay and bonuses.
The review suggests extending the remit of banks' remuneration committees and recommends that all high earners' pay should be disclosed.
"Transparency has done wonders by opening the lid on Pandora's Box in Westminster; it is high time that the City was subject to the same level of openness and scrutiny," said Mr Cable.
The report adds that bonuses should be paid over a longer time frame in order to discourage short-term risk taking. Half the value of any bonus should not be paid for at least five years, it recommends.
It also says that high earners should maintain a share holding in the bank so their personal interests are aligned with those of their employer.
The review also looks at the role of board members.
Many people, including MPs, have questioned the level of banking experience of some directors, and Sir David sets out plans for non-executive directors to receive formal training.
Gordon Brown: "The tendency will be to full time chairmen of banking institutions"
Non-executive directors are those who do not have responsibility for the day-to-day management of the business and who are, therefore, expected to keep a close eye on the overall risks being taken by banks.
Some feel that they failed in this responsibility in the run-up to the financial crisis.
There was concern that too many people working at board level within banks did not have any formal training as bankers.
The former head of Halifax Bank of Scotland (HBOS), Andy Hornby, came from a retail background, having previously headed up supermarket chain Asda.
Following massive losses from bad loans, HBOS was taken over by Lloyds TSB at the end of last year. The merged group, which is part-owned by the government, is now called Lloyds Banking Group.
The Walker report stresses the need for banks to be run by bankers.
Properly qualified and trained non-executive directors "should be ready, able and encouraged to challenge and test the proposals on strategy put forward by the executive," the report says.
Sir David also recommends that non-executive directors "should be expected to give a greater time commitment than has been normal in the past". This, he says, should be a minimum of between 30 to 36 days in a year.
He also says that bank chairmen should devote "not less than two-thirds" of their time to bank business, and should be put up for re-election every year.
Finally, Sir David said large institutional investors should exercise their voting powers, and publish their voting records.
The Walker Review, which will go out for consultation, comes as the City watchdog, the Financial Services Authority, continues its inquiry into the crisis which ripped through the UK banking system last year.
The measures in the report were foreshadowed by the Treasury's White Paper on financial regulation, published last week, which announced a radical shake-up of the regulatory system for banks.
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