Britain is to conduct a review of bank management that will probe the link between bonuses and excessive risk-taking, British Chancellor of the Exchequer Alistair Darling said in comments published yesterday.
British Prime Minister Gordon Brown’s government has launched two rounds of bank bailouts worth hundreds of billions of pounds that has seen the state take big stakes in high street names like Royal Bank of Scotland (RBS).
But the prospect of banks that have been propped up by the state handing hefty bonuses to executives and traders has provoked fury.
The Sunday Telegraph newspaper reported that RBS wanted to pay its staff nearly £1 billion (US$1.48 billion) in bonuses this year.
“The City bankers who ruined their banks but have been kept in employment by the taxpayer now demand we pay them their bonuses to maintain the aristocratic lifestyle to which they have become accustomed,” Vince Cable, finance spokesman for the center-left opposition Liberal Democrats, wrote in the Mail yesterday.
“They know no shame and take no blame. They are lucky the British have no guillotines in stock,” he said.
Darling is expected to announce full details of the probe today, but wrote in the Sunday Telegraph that he was “setting up an independent review which will examine how banks are managed.”
“Questions should have been asked earlier, especially in banks’ boardrooms, when banks seemed to be so successful,” he said. “Why were some directors so taken aback when the banks for which they were responsible came to grief?”
He expected the review “to make recommendations about the effectiveness of risk management by banks’ boards, including how pay affects risk-taking.”
Darling said: “Of course, no government should try to remove risk-taking from the system. Nor would we want to. But government can act to protect people when excessive risk-taking threatens us all.”
The announcement comes as pressure grows worldwide on banks that have been helped by the state to cut back financial rewards for top staff.
On Wednesday, US President Barack Obama said executives of finance firms taking government bailouts would have their salaries limited to US$500,000.
RBS is 68 percent owned by the taxpayer. The recently merged HBOS-Lloyds TSB is 43 percent state-owned, while Northern Rock was nationalized last year.
RBS said last month it expected an annual loss of up to £28 billion for last year — a record in British corporate history.
Brown said last week that he expected banks’ decisions on awarding bonuses to “to reflect the conditions of the economy and the performance of the banks.”
“There are no rewards for failure in what we are proposing,” he said.
Darling, meanwhile, urged them to demonstrate “far more responsibility.”
“I know people feel angry about excessive bank bonuses,” he said. “People who work hard should be rewarded for their effort. But it would be wrong to reward people whose excessive risk-taking brought the banks down, causing misery to millions of their customers.”
“Success should be rewarded. Failure should not,” he said.