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Bankers' bumper salaries should be slashed to levels similar to those of other professionals, the Bank of England Governor suggested today.
Mervyn King argued that “thoughtful” people in the City would accept that many multi-million-pound pay deals should be cut.
The governor, who is himself paid about £300,000 a year, appeared to advocate that bankers should be paid salaries comparable to lawyers, accountants and doctors — although he did not specifically mention these professions.
He told MPs that Barack Obama had opened the door to radical reforms in the Square Mile which were vital to ensure it thrives.
In a blow to Gordon Brown, he bluntly dismissed the idea being pushed by the Prime Minister for a worldwide “Tobin tax” [on high-risk speculation]. The Bank of England also signalled support for the US president's plans to limit the size of banks — a move opposed by the Government but favoured by the Conservatives.
However, it is Mr King's words on the need for reforms which are likely to spark anxiety in the Square Mile still reeling from Mr Obama's aggressive proposals and the 50 per cent tax on bonuses above £25,000 in Britain.
Arguing that the City was so big that a major overhaul was needed to protect the taxpayer from future financial crises, Mr King told MPs: “The more thoughtful bankers will recognise that this is likely to create a banking system which in the long run will earn normal rates of return...
“It's very unlikely to justify, I think, the sorts of extraordinary remuneration that we have seen.”
Mr King stressed that the British economy was so heavily reliant on the banking sector, which was five times as big as Britain's GDP, that it needed to be better protected against another financial crisis.
“The only way in which we can really sustain a large international financial centre in London ... is if we can make sure it doesn't impose a prospective burden on the UK taxpayer,” he told the Commons Treasury select committee.
He admitted that steps to limit the impact of another financial crisis could reduce the size of the City.
Reader views (15)
Are we talking about the doctors who are overpaid (by the taxpayer), inefficient, and provide less service to their customers than ever before ?
Who out-source the awkward weekend and evening work to highly paid foreign subcontractors working for non-accountable unelected companies ?
Then the comparison with MP's, lawyers???? and tax-avoiding/evading accountants is, indeed, justified !
- Cap, London, 27/01/2010 15:42
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Just to clarify my earlier post, I am not talking about increasing teachers' salaries.
- Jules, Ilkley, U.K., 27/01/2010 12:11
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If it going to be like that then would somebody dare to explain why lawyers are paid more than honest professionals, such as teachers???
- Jules, Ilkley, U.K., 27/01/2010 12:00
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I agree that managers and board directors salaries should be more reasonable as they are just performing a "professional role" comparable to doctors or lawyers. Traders who produce the banks profits though are different. Most media coverage is vastly exagerated, but these people are paid a small percentage of money they make. This can't be directly compared to a doctor, unless you want a letter at the end of the year saying "Dr.X has done a very good job so please send me your cheque for £200 extra tax to pay for his bonus".
- Mark, London, 27/01/2010 11:03
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Mervyn King is the voice of sanity, but I think he can be topped by Patrick Hosking who wrote "Many of our bank leaders and regulators look like callow inexperienced pygmies clinging to teh statusquo - too young to remember a time when banks weren't casino; too self interested to consider alternative ways of doing things; too focused on their little patch to see the bigger picture; too timid to embark on serious change"
He wrote that on 23rd Jan 2010, the man is a genius.
Mervyn whilst you're at it, why not insist regulators are grossly overpaid as well and sack all the senior management at the FSA, for doing so little and securing their own pension nests whilst the system implodes.
- Robert Marshall, LONDON, 26/01/2010 18:39
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One of the Key problems is bankers see the bonus as part of their salary and have mortgages, school fees and life style linked to them. They do not believe in the company or shareholders, their sole aim has been the bonus, regardless of the risk to shareholders. The problem is not just greed its the breakdown in the morals between employee and employer.
- Andrew, London, 26/01/2010 18:33
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Bankers are only the tip of the iceberg. Look at the £250 million advisor fees taken from Cadbury shareholders and ultimately out of our pension pots.
- Adam, London, 26/01/2010 17:28
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Now the question is, if banks are to broken up because of their influence and power and bad risk management, which can bring down an entire system.
How about those massive conglomerates in the food, energy, oil etc industries?
- Chris, Hamburg, 26/01/2010 16:28
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"Take a good look at the backgrounds of the people who run the financial system. We can then see why we have this crisis in the money markets.T H"
Actually ,if you bothered to do some proper research rather than engage in armchair politics, you would find that people who work within the financial markets are one of the most diverse groups in terms of background out of almost any professional industry in the world.
- Jp, UK, 26/01/2010 16:26
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Greed, greed, greed, greed, greed, greed........need I go on.
Until "Bankers" realise that the bonuses/wages they earn are abhorrent nothing will change and we, the public, will be on tenterhooks wondering when next we'll have to bail them out with our money.
Time for an econimic revolution!
- Kevin, London, 26/01/2010 16:25
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Take a good look at the backgrounds of the people who run the financial system. We can then see why we have this crisis in the money markets.
T H
- Thomas Hayes, Bradford UK, 26/01/2010 16:06
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Are we to assume that the committee salaries will be likewise?
- Harvey N Lawrence, London UK, 26/01/2010 15:43
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"But the reason why we are in a particular difficulty is that the size of the banking system has now become so large relative to GDP ... and that is something which the market itself will recognise as being not something that's likely to be sustainable."
So, knowing the above fact has been true for many years, why did you not do something about this issue prior to the crises or were you afriad to stand up and be the lone speaker, for fear of losing your fat salaried job & pension pot. Now you want to look good in the eyes of the public by making statements like the above. Are you not equally to blame as the banks, politicians and all those idiots who binged on cheap credit. Many people think you are.
- Frank, Copenhagen, Denmark, 26/01/2010 14:06
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There's no sense listening to the nation's most senior central banker when the Chancellor and Prime Minister know better based on the events at the Dumbarton Building Society, is there ?
- John, Twickenham, 26/01/2010 13:22
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The reason we are in this mess is due to greed.Fifty years ago,top managers earned a fair but reasonable salary,bonuses were few and company profits were put aside for tough times ahead.Now,any profits made are quickly divided amongst the rich bosses,with little put aside for the future.One thing however has not changed,slave labour continues to create this wealth.
- Dave, london, 26/01/2010 12:59
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