Debate on bank bonuses continue in UK

Robert Peston has a number of posts on this very interesting set of events in UK. Bank Bonuses  just keep getting bigger..

  • UK Banks are again going ahead with the year-end round of bonus giving. This has irked many a people and stressed the current government. Infact govt. has nearly given up on this bonus giving fact and is only hoping this year’s bonuses are lower than last years!
  • He then reflects on the reason – Why government can’t stop big bonus payments. This is simple as this sector provides the Exchequer with lofty taxes. Any forceful attempt could lead these high fliers to move from UK
  • In an interesting post, Peston looks at the reasons why people in UK react to bonus. He says US banks are also paying bonuses, have taken taxpayer’s money, survived because of government support etc. Then why just UK and not so much in US. He says one reason could be in US bonuses are paid by Banks which do not provide any services to US public. Whereas for UK it is banks like HSBC, Barclays etc which pay these bonuses and provide many services to UK public. So UK public is more angry as here banks reject a loan, charge overdraft fees etc and impacts the lives of people more than US banks.

To put it another way, when a British person becomes angry at Royal Bank of Scotland, it’s like being angry with an errant family member; when an American becomes angry with Goldman Sachs, it is probably the equivalent of being furious with an irksome stranger.

In the UK, it is very difficult to escape from RBS, Barclays and HSBC. They are everywhere, constant reminders of the bonuses they pay that are viewed by many as unwarranted and egregious. Also, there is a general view that these banks are deploying our precious deposits to gamble, to generate their bonuses – and that our savings are being put at risk so that bankers can live in mansions.

  • Peston also points to speech of Barclays chief debating with Treasury Select Committee. He says he is compelled to pay big bonuses for retaining all that talent.

Apart from Peston’s blog, UK Chancellor of the Exchequer gave a speech blaming the previous govt for all its ills:

Mr Speaker, we inherited from the previous Government a failed system of banking regulation and a situation where billions of pounds had been provided to bail out bankers with nothing demanded in return. It was a something for nothing deal that rightly left the British people seething with anger.

He explains a couple of changes his government is trying to do. Ironically, even at RBS which is under the govt. bonuses are being paid:

When it comes to the Royal Bank of Scotland, I am having to deal with the thoroughly inadequate contract negotiated by the previous Cabinet, which the House is probably not aware puts no constraints at all on RBS’s bonuses this year.

Indeed it explicitly encourages them to pay bonuses in line with market rules. But despite this we have made it clear that RBS will have a smaller bonus pool than last year and should be a back-marker in the industry, instead of the front-runner it once was.

All this is like reading literature on some developing / underdeveloped economy!

In the end he says:

I can confirm that we are now in discussions with the banks to see if we can reach a new settlement, where:

  • The banks pay smaller bonuses than they would otherwise have done;
  • Are more transparent about those they do pay;
  • Make a greater contribution to local communities and the regional economy;
  • Treat customers fairly;
  • And above all lend materially and verifiably more than they were planning to the businesses of Britain – especially the small businesses – so that they can grow and create jobs this year.

This is what a new settlement with the banks looks like:

  • Where they lend to the British economy;
  • Contribute to the British exchequer;
  • Provide jobs for the British people;
  • Are responsible on pay and bonuses;
  • And where Britain can be the world centre of a properly regulated and internationally competitive financial services industry.

If the banks cannot commit to that, I have made it clear to them that nothing is off the table. I will keep Parliament informed of our discussions.

And if the Opposition that created this banking mess has a better idea, let us hear it.

Forget the opposition Sir. Let us hear some better ideas from you! What a tragedy for UK. It just proposed this short-term fix to use bank levy to meet its budget deficit. And now all this. What is worse is that these leading economies are setting very bad examples for others.

One Response to “Debate on bank bonuses continue in UK”

  1. UK economy is interestingly poised « Mostly Economics Says:

    […] activity remains in slump but inflation keeps missing BoE’s targets. On top of this you have bank bonuses which keep going on and […]

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