The City is up in arms over government plans to tackle bankers’ bonuses. The Financial Services Authority (FSA) will be given the power to “tear up” bankers’ contracts if they include bonuses that could lead to excessive risk-taking and endanger the stability of the banking system, says Nils Pratley in The Guardian. But why the fuss? The FSA already has these powers. “Guidelines banning guaranteed bonuses, and introducing greater elements of deferred reward, were introduced in March.” The Queen’s Speech merely formalises the current position.
It’s all part of an attempt to communicate to voters that “Labour is tough on bonuses, tough on the causes of bonuses in the run-up to the election”, says James Moore in The Independent. Luckily for the government, the City has “kept the pot boiling by appearing to have fallen for it hook, line and sinker”.
The British Bankers’ Association warned the measures would put our competitiveness at risk and that ‘talent’ might flee abroad. Then Sir George Matthewson (the chairman of RBS prior to the financial crisis) stepped “up to the plate in the guise of ‘banking grandee’” to warn of the “dangerous path” we will be travelling down if we adopt legislation that “would interfere with the rule of law”.
But there’s “more spin than substance” here. And it may be creating “dangerous expectations” that the FSA will crack down on bankers’ pay, which is “really what bothers people”. But the watchdog doesn’t care about how much money bankers get. “Its concern is the way in which people are paid and what they are paid for. So bankers will go on making ridiculous sums of money, they just may have to wait a little longer to get their hands on it.”
Quite, says Jill Treanor in The Guardian. The FSA will be able to “veto any contracts drawn up after 1 January” that breach rules on guaranteed bonuses and incentivise risk, but City experts will find a way round it. Barclays has already said it is considering giving pay rises to its bankers because of bonus restrictions. That shouldn’t surprise us, says Jason Groves in the Daily Mail.
As Geraint Anderson, former trader, said: “Banks are populated by greedy, ruthless, clever people and they will find ways around this; they always do. Potentially, a very simple way is to increase the basic salary massively”.
No wonder these measures have been dismissed as ‘window dressing’. The Treasury has admitted there will be no absolute cap on bonuses, and the £6bn set to be handed out this Christmas, will go ahead as planned.