UK Treasury chief: Banks' bonus pay must be curbed

By
August 17, 2009 10:49

Britain's financial-services watchdog has drawn up new rules on bankers' pay, but critics say they are too weak.

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The government is ready to bring in laws to curb the sort of big bankers' bonuses that helped trigger the global financial crisis, Chancellor of the Exchequer Alistair Darling was reported as saying Sunday. "I'm quite clear that some of the problems we have today were caused by the fact that some traders were incentivized to take risks which neither they nor their bosses fully understood," he was quoted as telling the Sunday Times newspaper. "If we need to change the law and toughen things up, we can do that." Britain's financial-services watchdog has drawn up new rules on bankers' pay, but critics say they are too weak. The Financial Services Authority has outlined a code to stop bankers from getting bonuses at high multiples of their salary or bonuses guaranteed for more than a year. Banks that fail to comply could face higher capital charges or other punitive action. However, the authority backed away from imposing some new restrictions on the structure of bonus payments and reduced the range of financial institutions that the new code will cover. That retreat followed industry warnings that the tougher measures would cripple London's position as a financial center. Darling said the new code "is only part of our approach" to preventing another banking crisis. Despite the global push to reduce the risk-taking associated with big bonus pay, reports suggest that bankers' bonuses are creeping up regardless. The London-based Center for Economic Business and Research has forecast bonus payments by banks will hit £4 billion this year, up from £3.3b. a year ago. Darling said citizens were "rightly concerned," particularly given their newfound status as shareholders in nationalized banks. Britain seized Northern Rock and took major stakes in Lloyds and the Royal Bank of Scotland after they teetered amid the global credit squeeze. "I am not against bonuses where you are rewarding good behavior and long-term growth. That is something you should encourage," Darling was quoted as saying. But he warned that banks must not return to "a situation where firms actively have a pay system that results in them being exposed in a way that led to ruin."


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