The Sunday Times reported yesterday that bankers at RBS are set for a bumper bonus round this year. Apparently, RBS will be paying out £5million in bonuses this year, with people in the investment banking arm taking home an average of £240,000 each.
Let’s be quite clear about this. If true, this is completely outrageous. It would be totally unacceptable if RBS used OUR MONEY to reward themselves with big bonuses. Without Governmental support, RBS would have gone the same way as Lehman Brothers. An absurd business model almost brought one of Britain’s oldest banks to its knees. The Treasury had to pump £20 billion into the bank to keep it afloat. This absurd, high risk, irresponsible business model was a major factor in triggering the recession that is still having devastating consequences, in terms of unemployment on ‘main street’.
Just over a year after the bank was put onto life support using public money, it is shocking that the bank’s instinctive reaction is to embark on a champagne fuelled bonus spree using OUR MONEY. This at a time when the rest of us are having to tighten our belts and we are facing a public sector deficit of record proportions (in large part because the state had to step in to rescue private banks from their own folly last year). This at a time when unemployment is approaching 2.5 million. These bonuses, if true, reveal a lack of human decency and a lack of shame for the carnage that the bad decisions of bankers let loose on the economy.
Sure – bonuses can work as an effective incentive model, when the bonus is a share of profits. It is entirely up to private sector companies what they do with their own profits. However, bonuses should be used as an incentive for success not a ‘reward’ for failure. Sky high bonuses should not be paid using public money. Bankers are acting like the House of Bourbon – they have learned nothing from recent history. Seemingly, they do not understand their debt to wider society and the need for self restraint. This round of bonuses is completely unacceptable and counts as a scandalous waste of public money.
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By nationalising Northern Rock and part-nationalising others but not tackling the habits that brought the banks to their knees, the Government has created a halfway house that serves nobody except the self-serving. Perhaps what a future Conservative government needs to do is swallow its pride and nationalise filing banks wholesale, but do it the right way – fire all employees above the rank of, say, regional manager and invite them to apply for posts with radically changed terms and conditions.
The government has tried to be all things to all men, and in so doing has missed a historic opportunity to create a state bank out of the credit crunch. Such a bank would have been able to create and destroy an issue of money at will and would have been able to play a key role in creating a fresh lending dynamic.
Alas the opportunity was missed and once again government is dependent on international lending houses to get the British economy moving again. Half-measures rarely work and the public-but-private status will only encourage further abuse of the banking system.
Unsurprisingly, bankers are not altruists. They want to make money. There is an inherent tension between having stable banks and having highly profitable banks – the latter often resulting in inappropriate risk-taking. As banks don’t have the threat of bankruptcy to rein them in (they have to be bailed out), regulation is the only way they can be controlled effectively. Thus the ultimate failure has been one of regulation and to rail against the relative sideshow that is bankers’ bonuses misses the broader context in which banks’ financial irresponsibility should be placed.