The problems at the heart of the financial crisis are awfully complicated. Or so we are told. In recent years, the discussion seems to have focused on the inadequacies of mind-boggling mathematical equations, the tangle of regulations impeding the implementation of capital requirements or the ring fencing of domestic retail banking. But in fact, one of the most serious problems is wonderfully simple: shareholders have been unable to hold their banks to account. And yet for all its simplicity, it remains unsolved and virtually untouched.

Over the past 20 years, the proportion of banking profits going to shareholders has decreased, while the proportion going directly towards salaries has increased. Not only this, but in the lead up to the financial crisis, banks continued to expand their balance sheets, reduced their capital ratio and invested in ever more risky assets. Nowhere is this more evident than at the Royal Bank of Scotland (RBS), which from 2000-08 rapidly rose to global prominence as the world’s largest company by assets (£1.9 trillion). These executive strategies may have been in the CEOs best interest, but shareholders suffered and banks were consistently underperforming their FTSE100 rivals. The RBS Annual Report of 2009 illustrates this point clearly.

Why did they let this happen? If anyone could give me an answer, it was Professor Sir John Vickers, Chair of the independent Commission on Banking, Warden of All Souls and economist extraordinaire. I found him in an intimate room on the upper floors of the Ashmoleon, where he was giving a talk on his latest take on the banking crisis. There I asked him how he would explain the apparent passivity of shareholders in the lead up to the crisis. “Why they tolerated more profits going to remuneration rather than shareholders seems inexplicable”. However, he volunteered to try to explain all the same. In part, Vickers believes the reason why such risky behaviour was tolerated was that shareholders appeared to get the upsides form those investments without suffering the downsides. Many shareholders were all too aware that their banks were ‘too big to fail’ and that in case of emergency, the government would have to bail them out.

But there is also a more sinister explanation for this trend, which is the tacit collusion between the elites in the financial sector. For all the talk of free markets, power remains surprisingly concentrated in the hands of banking executives, fund managers and insurers. These individuals have approved riskier strategies and higher pay packets in the name of self-interest.  ‘I’ll scratch your back if you scratch mine’ seems to be the underlying philosophy. All too often, the board of directors have been populated with the same small crowd of executives who have an interest in partially ignoring the shareholders’ interest so as to create a norm which they can replicate at their own financial institutions.

But all that is changing. On 27th April, 32% of Barclay’s shareholders failed to support the remuneration report which approved a payment of over £20m to their chief executive, Bob Diamond, last year. Last Thursday, 54% of Aviva’s shareholders voted against their pay report and 37% revolted against that issued by UBS.  For too long, shareholders have been asleep at the wheel. It is time to wake up.