The fur is flying in the City.
The heavyweights are pulling no punches. In the blue corner is Bank of England Governor Mervyn King. In a blistering tirade against his City colleagues he roared, ‘Banks have come to realize they are paying the price for having designed compensation packages which provide incentives that are not, in the long run, in the interests of the banks themselves.’
Well, bankers were not standing for that! So into the ring stepped their representative Angela Knight.
The fair Knight is the Chief Executive of the Banking Association, and would speak up for the industry even if the banks were to take all our money and fire it into outer space. Pouring scorn upon the central banker she blasted him with the following withering words. ‘This is a financial services industry on which a lot of jobs are hanging. I don’t think we should have the luxury of public squabbles.’
Wow! Strong stuff, eh? And not to be left out of a good scrap Doug McWilliams, the chief executive of the Centre for Economic and Business Research has also lambasted the reeling banking industry.
‘It does look,’ he blazed, ‘as if bonuses got paid on the basis of risks which turned out not to be justified.’ Phew! All we need now is for the Archbishop of Canterbury to weigh in with his views and the very foundations of our financial system could shake.
But what is this! He has done just that! Dr Rowan Williams has jumped over the ropes with fists flying. ‘Ministers,’ he snarled, ‘should be a little more worried about the disproportionate salaries enjoyed by City high-fliers.’
‘A little more worried’. Ouch! Steady on!
Who would be a City banker now, attacked on all sides by the Bank of England, by the economics profession and now by the Church itself?
Has the banker been left with any self-respect? How can he face his family, pilloried by the community, held in contempt by the highest moral authority, and accused by one and all of destroying the dreams of house buyers?
After kissing the tears from the cheeks of his sobbing children, does he crawl upstairs to the spare bedroom and count his money? Does he vow to buy a pearl necklace for his poor wife, ashamed and unable as she is to meet the damning gaze of her neighbours?
Change is unlikely in the City
I doubt it. Because he knows that nothing much is likely to change. The moral lectures of the great and good will make no difference. Although the City is not quite the cosy club it once was, Mervyn King may still find himself sitting next to Angela Knight at a Mansion House dinner. And neither of them would want the atmosphere to be too frosty.
Whatever they might say for public consumption there is not much these leaders can do about bankers’ pay. And anyway, as Angela Knight has kindly reminded us, it is not really the fault of British bankers who, in the true national spirit of self-restraint and service, would gladly work for much less. It is all the fault of the foreigners.
It is those American and French bankers who are all so frightfully greedy. They have bid up City pay and the poor British banks unfortunately have no option but to compete. It is just the way of the market, but we should be thankful that these foreigners have chosen the City as the place to punt around in foreign exchange markets, invent incomprehensible derivative instruments, buy up all the best flats and clog up the roads with their Ferraris.
I am not thankful for any of this. And I agree with two other comments of Mervyn King.
He told the Treasury Select Committee ‘There was a lot of hubris around in thinking that the expansion of financial services was a good in itself. It is not; it is a means to an end.’ Exactly. The financial services industry should serve. It should serve savers, borrowers, and business. It is not there to profit from exotic trading and to find ever more inventive ways of ripping money out of the hands of the rest of us.
And the second comment with which I agree is this. ‘I do think it is rather unattractive that so many young people when contemplating careers look at the compensation packages available in the City and think that these dominate almost any other kind of career.’
Too right.
We need our best and brightest people in industry, in medicine, in teaching, in the arts – in fact in anything other than what should be the humdrum business of looking after people’s spare cash and lending to government and industry.
The big question is – how can this be achieved? No doubt bankers will issue a little humility in the next few months. But unless there is some radical change in the system, once the engine of economic expansion has been cranked up again the City greed machine will be up and running and a whole new generation of thrusting number-crunchers will be chasing City riches instead of doing something useful.
This article is taken from Tom Bulford’s free daily email, ‘Penny Sleuth’.