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British Government Must Give Us Answers Before Banks Make More Pay-outs Warns Independent Commission

Politics / Credit Crisis 2011 Feb 08, 2011 - 06:23 AM GMT

By: Submissions


Best Financial Markets Analysis ArticleZoe Gannon writes: The UK bank bonus season opens on 15th February when Barclays publishes its results which will show how much it has allocated to pay, this will set the bar for pay-outs at other banks, including nationally owned RBS and Lloyds which are due later this month.

With some pay-outs expected to reach seven figures, the independent High Pay Commission today argues that the reasons often cited for these awards don't add up when the economy is still reeling from the crisis the banks helped create.

George Osborne’s announcements today of a higher rate on the government’s banking levy is welcome but it still leaves fundamental questions unanswered.

The Commission has set out 10 key questions aimed at helping people see clearly whether the bonuses awarded are fair and justified. The key questions are set out in a briefing prepared by the Commission which highlights some of the evidence and expert opinion in relation to each, and include:

Is the financial sector really so vital to the UK Economy that those who work in banking need be rewarded to excess?

Evidence suggests that the bailout given to the banks in 2009 far exceeds their net tax contribution for previous years.

Will bankers really leave the UK to seek higher pay elsewhere if their bonuses are limited?

Expert opinion suggests that this is simply scaremongering and when offered the chance to relocate, bankers have preferred to stay put in the UK.

Do the banks’ profits really justify paying out large bonuses at this time?

The evidence suggests that pay-outs are made even when performance can’t be seen to justify them.

Are the banks paying out large bonuses instead of building up their capital reserves?

Many commentators argue that regulation is too lenient to prevent this.

Do bonuses work effectively to motivate the right sort of behaviour in our financial sector?

Evidence suggests that bankers are too often rewarded for quick deals and short-term gain.

Are large bonus pay-outs the symptom of a banking model that is unsustainable?

Much expert thinking suggests that the answer to this question is an unequivocal “yes”.

Deborah Hargreaves, Chair of the High Pay Commission, says: “The public is justifiably angry about bankers' bonuses, but the debate needs to move beyond ‘who got what’. The government still owns huge stakes in some of our banks so we need answers to these essential questions to tell us why these bonuses have been awarded.”

“At a time where we are all being asked to tighten our belts, people have a right to know not just how many millionaires this bonus season has created, but what is really going on in the City.”

The other key questions are aimed at shedding light on how banking pay and bonuses are regulated, including:

If the current state of regulation over capital reserves is not enough to protect against a crisis – are the stress tests conducted by the CEBS sufficient?

If it is uncertain whether stress tests can be effective, would more disclosure of bonuses enable shareholders to have a greater say over the risks in banks?

Can the banks self-regulate or exercise voluntary restraint as is being attempted in project Merlin?
We have seen significant changes in regulation since the financial crisis, has this reduced the likelihood of another crisis?

Deborah Hargreaves adds: “Banks need to stop pulling the wool over our eyes and come clean about why these bonuses are really being paid. It is vital for the health of our economy to understand what is going on inside the City."

"Our Commission is gathering evidence so that we can have an informed debate about pay and bonuses. To do that we need more openness and honesty about why these awards are made."

For more information please contact Zoe Gannon 07944 915312

The full briefing note listing all of the questions and providing the relevant evidence and comment that the Commission believes should be highlighted is attached.

The High Pay Commission is an independent inquiry into high pay and boardroom pay across the public and private sectors in the UK.

Deborah Hargreaves is chair of the High Pay Commission and the former business editor of the Guardian. She previously worked at the Financial Times where she was news editor and before that, financial editor.

© 2011 Copyright Zoe Gannon - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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