Clegg launches five point plan to bring bankers’ bonus culture under control

by Stephen Tall on April 13, 2010

A lot of people don’t enjoy election campaigns – but here’s one reason I do: the quality of Lib Dem press releases sky rockets. Today’s announcing Liberal Democrats’ five point plan to tackle bankers’ bonuses is a case in point: punchy but detailed. So good, in fact, I’m simply going to hit the copy ‘n’ paste key …

    Background

    The UK banks owe their very existence to the British taxpayer. Some banks such as RBS, Lloyds-HBOS and Northern Rock have received direct taxpayer bailouts, yet all have benefited from the explicit guarantee that none of them will be allowed to fail. Despite this, too many banks think it is acceptable to return to business as usual. Bonuses are already being paid out by all the major banks regardless of the fact that some of them are still making losses.

    The bonus system was in part responsible for the financial crisis that hit the entire globe. Bonuses based on short term performance actively encouraged bankers to put short term profit far ahead of long term stability and growth. It encouraged bankers to create complex products to drive up profits, to lend to people who would be unable to pay the money back and to launch takeover bids of other banks regardless of the consequences.

    After the billions of pounds that taxpayers have provided in support of the banking system Liberal Democrats know, people are simply not prepared to see the return of bumper bonuses – especially if they’re paid out irrespective of the success of the bank.

    Liberal Democrat Proposal

    The Liberal Democrats will ensure that the bonus system can never again encourage banks to behave in the way that led to the banking crisis. Ultimately our plans to break up the banks and make a more competitive banking industry will bring an end to the excess profits of the investment banking system and with it the massive bonus payouts. However, the Liberal Democrats also have a five point plan to tackle bankers’ bonuses quickly. This is:

    No cash bonuses – We will require all bonuses in excess of £2,500 to be paid in shares. These shares will only be redeemable after five years; it will be written into the right of entitlement of these shares that they will revert to the company if they are pledged or used as security prior to the date of their redemption.
    No bonuses at board level – We will ensure there are no bonuses at the board level of banks. This is not to say that board directors should not be well paid, but that they should have the long term interests of a company at heart – bonus payments do not encourage this.
    No rewards for failure – We will extend the Financial Services Act to ensure that no regulated institution which has made a loss can pay discretionary bonuses.
    Total transparency – We will require the publication of the names of all bank staff that have salaries and bonuses that are greater than the Prime Minster’s salary (which is just under £200,000). In addition we will require the FSA to publish its assessment of all regulated firms remuneration policy.
    Holding directors to account – We will extend the powers of the FSA to ensure that the directors of banks are personally fined if their institution breaks the current code of practice for remuneration

    Liberal Democrat Leader Nick Clegg said:

    I want to see fundamental reform to Britain’s banks. Only by transforming the banking industry from top to toe can we start to build a new economy. I make no apologies for the fact this will mean big changes in the City of London. I want to see a change as fundamental as the Big Bang of the 1980s, for the better, not the worse.

    “I want to focus, today, on one particular issue: bankers’ bonuses. They have become symbolic of the culture of greed and excess that dominated the City in the build-up to this crisis. We have a five point plan to finally bring the bonus culture in banking under control.

    “Liberal Democrats will ensure the bonus system can never again encourage banks to behave recklessly. Ultimately our plans to break up the banks and make the banking industry more competitive will bring an end to the excess profits of the investment banking system and the massive bonus payouts that come with it.

    “But we should not wait. Bankers must understand that after the billions pumped into the banking sector there can be no financial or moral justifications for the obscene bonuses which are still being paid out.”