Populist posturing can never be far from politicians’ minds even during these tumultuous times in the global financial markets.
So it came as little surprise that Chancellor Alistair Darling’s parliamentary statement following the part-nationalisation of two of the UK’s four big banks focused strongly on the government’s decree that RBS and HBOS directors will receive no cash bonuses this year (and presumably for some time to come).
Surely this is a classic case of closing the gate after the horse has bolted. Incentives at banks for those financiers whose success is crucial if taxpayers are to be promptly reimbursed for this bailout are to be abolished. Meanwhile no action is to be taken to recast previous years’ banking profits to reflect a past reality that is becoming increasingly apparent. Whilst the credit default swap scandal unravels it is abundantly clear that this – and other forms of highly risky financial sleight-of-hand – mean that profits in the financial services sphere (and many bonuses) in recent years have, in part, been based on a fraudulent overstatement of turnover.
A more rational approach towards banking bonuses would be for government to attempt to claw back some of the over-inflated bonus payments of past years (some of which is deferred remuneration yet to vest). However, presumably this would also require HMG to repay vast amounts of corporation, capital gains and income taxes…
