Surface Ripples

Bonuses Banished??

There's still a huge debate over bankers' bonuses and whether they are deserved or not. What seems to be missing is a closer look at who is getting bonuses and why.

Our friends in Westminster continue to make political hay out of the fact that some bankers are being paid bonuses at all. Whilst this may delight the public, there are some facts that are being overlooked and/or conveniently ignored:

1. The bankers aren't solely to blame for what's happened. True, we would expect them to have exercised more caution, as the good times couldn't last. However, the current government (remember the boast that we had "abolished boom and bust"?) has plenty to do with the current state of play as they certainly didn't discourage people from borrowing as it resulted in more tax revenues form VAT and stamp duty on property sales.

2. The UK FSA either couldn't or didn't have a grip on things. They are now belatedly shutting the proverbial stable door after the horse has bolted (having warned the owners that it might come to this).

3. Joe Public equally played his part as he lashed out on luxuries, holidays and spent, spent, spent.

4. Shareholders in banks came to expect exponential revenue growth as a right. As credit became cheaper, riskier investments had to be made to earn a decent return.

Now for the banks. The convenient excuse is that they have been saved with taxpayers money. True? Almost. Northern Rock was nationalised, RBS is more or less completely owned by the taxpayer, whilst what is now Lloyds Banking Group is majority owned after the current government set aside normal legislation to enable it to take over HBOS. Barclays and HSBC however, are still free of government interference (Barclays, perhaps by the grace of God as their bid for ABN failed in the face of the RBS consortium's offer). There are those that say that HSBC and Barclays have benefited as business previously with RBS and HBOS may have gravitated to them, and therefore were also indirectly "rescued".

This is over-simplifying the situation; when any bank is in trouble, there will naturally be a "flight to quality" of some of its business. The fact is, HSBC and Barclays have been better managed (or so it seems) and therefore haven't needed to be bailed out. Why shouldn't they and their employees (and indeed their shareholders) be rewarded for not placing an EXTRA burden on the UK taxpayer?

Of course, this doesn't suit the politicians who are trying to distract attention from their abuse of their expense accounts and their economic mismanagement, so we'll still see the "bash the bankers" (who are also seen as "the rich" in this case in the current class war).


To stop bonuses that are part of the market mechanismk for rewarding talent is to drive that talent away and reduce London's competitiveness as a financial centre. In the end, this can't be good for the UK or for tax receipts to the government. In the end, the banks are still needed. New regulation is coming into place that will limit their excesses and I hope that we'll also see an FSA staffed by people who understand what they're doing.

posted by William Martin @ 18:09