Connect with us

Hi, what are you looking for?

Capital Business
Capital Business

World

Britain probing link between bonuses, risk taking

LONDON, Feb 8 – Britain announced Sunday it will look into whether the promise of big bonuses lured bankers into taking excessive risks, precipitating the global financial crisis.

It will do so as part of a larger review of how banks are managed, announced by Chancellor of the Exchequer Alistair Darling, that will also report on how bank boards operate and, more generally, on Britain\’s approach to banking.

Britain has already launched two rounds of bank bailouts worth hundreds of billions of pounds which have seen the government take big stakes in household names such as the Royal Bank of Scotland (RBS).

But reports that RBS in particular is considering paying its staff around one billion pounds (1.48 billion dollars, 1.14 billion euros) in bonuses have sparked outrage.

"They have to understand that these banks would not be here but for the British taxpayers, therefore they have to show the degree of restraint that people would expect," Darling told the BBC, stressing that "absolutely no figure has been agreed" with RBS.

"If we are providing money then the public are entitled to see something in return."

Darling is expected to announce full details of the probe on Monday. Writing in the Sunday Telegraph newspaper, however, he said he was "setting up an independent review which will examine how banks are managed".

The finance minister expected the review "to make recommendations about the effectiveness of risk management by banks\’ boards, including how pay affects risk-taking".

"Of course, no government should try to remove risk-taking from the system," he wrote. "Nor would we want to. But government can act to protect people when excessive risk-taking threatens us all."

Advertisement. Scroll to continue reading.

A spokeswoman for the Treasury could not immediately provide further details on the review when contacted by AFP.

"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 smaller opposition Liberal Democrats, wrote in the Mail on Sunday.

"They know no shame and take no blame. They are lucky the British have no guillotines in stock."

Prime Minister Gordon Brown, himself a former chancellor, said this week that he expects banks\’ decisions on bonuses "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.

The announcement comes as pressure grows worldwide on banks which have been helped by the state to cut back financial rewards for top staff.

On Wednesday, US President Barack Obama said executives of financial institutions taking government bailouts would have their salaries limited to 500,000 dollars.

The French Banking Federation will meanwhile this week unveil the new "code of conduct" after President Nicolas Sarkozy assailed bonuses for having led to "a catastrophe that we are all aware of."

Britain has launched two rounds of bank bailouts during the credit crunch — a 37 billion pound recapitalisation scheme in October and a second last month reported to be worth around 200 billion pounds.

Advertisement. Scroll to continue reading.

RBS, which now is 68 percent owned by the government, said last month it expects an annual loss of up to 28 billion pounds in 2008 — a record in British corporate history.

The recently-merged HBOS-Lloyds TSB is 43 percent state-owned, while Northern Rock was nationalised last year.

Click to comment
Advertisement

More on Capital Business

Executive Lifestyle

NAIROBI, Kenya, Mar 12 – The country’s super wealthy individuals are increasing their holding of bonds, gold and cash, a new report by Knight...

Ask Kirubi

NAIROBI, Kenya, Mar 9 – Businessman and industrialist Dr. Chris Kirubi has urged members of the public to exercise extreme caution when making any...

Ask Kirubi

NAIROBI, Kenya, Mar 24 – Businessman and industrialist Dr. Chris Kirubi is set to own half of Centum Investment Company PLC, following a go-ahead...

Ask Kirubi

It is without a doubt that the COVID-19 pandemic has caught the whole world by surprise. Although its full impact is yet to be...

Headlines

NAIROBI, Kenya, Mar 18 – Commercial Banks have been ordered to provide relief to borrowers on their personal loans, with loans eligible from March...

Kenya

NAIROBI, Kenya, Jun17 – Kenya’s tea leaves manufacturer Kericho Gold, has been awarded the Superbrands Seal by Superbrands East Africa for their quality variety...

Coronavirus

NAIROBI, Kenya, Apr 13 – As the local telecommunications industry gears up to roll out 5G networks in the country, the Communications Authority of...

Coronavirus

NAIROBI, Kenya, Mar 22 – Airtel Kenya is offering free internet access for students in order to enable continued learning at home in the...