Comment: Politicians must ensure that all banks change their ways

Chris Blackhurst
12 Aug 2009

Listen to most politicians — and it doesn't seem to matter these days which end of the spectrum they profess to belong to — about the causes of the credit crunch and they will cite greedy fat cat bankers with their over-the-top bonuses and mega-rich, two-fingers-to-everyone-else lifestyles.

Well, that's true to an extent. But only to an extent. Others were to blame — notably, ahem, the political masters themselves, their central bankers and officials, and yes, us, who went mad with our cards and unsustainable levels of borrowing. Of course, the political class do not want to hear this, which is why they've constantly chosen to lash out at the bankers.

There was a moment when it looked as though the FSA, the City watchdog, would be swept up in the common cause. That was in March when the authority suggested banks should be forced to delay paying large chunks of their bonuses which should be nailed to the employer's future performance.

It was an interesting proposal and one that would readily gain acceptance at Westminster (although in truth, it didn't go far enough — don't pay them anything, in fact, stringing them up on Temple Bar would do it). However, there was a problem: only Britain was preparing to go that far and, in case anyone had failed to notice, most of the names adorning the buildings around the City and Canary Wharf were foreign. It wouldn't take much to send them packing, to countries which still treated them civilly and heavens, might actually welcome their business and could not care two figs how much they paid their people.

This naked reality of the modern world, where the UK is but one player in a global financial system, may be lost on the Little Englanders and the Little Scots (bless em) in Parliament but the City's referee got the message. The G20 meeting held here allowed Gordon Brown to puff his chest with pride but the rhetoric was already emptying.

Other countries, particularly the US, were not moving at the same pace, so the UK was in danger of handicapping the very industry that had brought so much success until the international markets froze and economies turned. That prosperity would come again, but elsewhere.

“Such an approach cannot work if it is only applied in the UK”, Hector Sants, the FSA chief executive, acknowledges today. It's not the job of Sants to knock together the heads of his fellow regulators. That was down to the foreign leaders who posed for photographs with Brown in London in April but then went on to do very little.

Neither is it Sants's task to determine an individual's appropriate pay packet or the size of a bank's overall bonus pool. His role is to ensure the survival of the company is not being put in jeopardy. That, as he makes clear today, is something for the bank's owners to determine.

In some cases, those proprietors happen to be the politicians themselves. And, guess what, they've found that if they are to continue to retain and attract good staff, they must reward them according to the prevailing market standard.

Until all the major financial centres fall into line and all the banks change their ways, there is little prospect of the sort of shift in direction that popular opinion demands.

The FSA has been able to tighten the guidelines, particularly in regard to the management of risk and how that relates to remuneration policy, and its supervision is to become much closer and more rigorous. It can require banks to hold more capital if it feels they are distributing too much and that will limit their ability to pay.

Even here, however, it is out on its own — other nations must be persuaded to follow suit. And that, funnily enough, is down to the politicians.