Bankers in the UK have launched a counter-attack against the Bank of England's Governor, Mervyn King, after his criticism of the industry's multimillion-pound bonuses.
The British Bankers' Association went on the offensive yesterday, saying Mr King should avoid wading into the row over bonuses. Speaking at the ACT Annual Conference in Edinburgh, the BBA's chief executive, Angela Knight, said: "This is a financial services industry on which a lot of jobs are hanging; I don't think we should have the luxury of public squabbles."
Investment bankers working for some of the biggest firms in the City of London dismissed Mr King's comments yesterday, calling them an exercise in "back-covering" and a "giant red herring".
One investment banking professional based in Canary Wharf said: "He is just trying to deflect attention from the central bank during a difficult time for the markets, and he is also trying to look tough. Bankers won't really care about the comments." Another, who works in the Square Mile, added: "It makes absolutely no difference what Mervyn King says."
None of the investment banks would comment on their bonus or remuneration policies, and were wary of entering a public slanging match with the Bank of England. One said: "We tend not to taunt the regulators and the central bank. It's what they want."
The Governor railed against the compensation schemes of City firms at a session with the Treasury Select Committee on Tuesday. He said the culture of mega-bonuses had helped exacerbate the disintegrating financial markets, adding: "I think that banks themselves have come to realise in the recent crisis that they are paying the price themselves for having designed compensation packages which provide incentives that are not, in the long run, in the interest of the banks themselves, and I would like to think that would change."
He said the system was not closely enough aligned to long-term performance and encouraged bankers to take extreme risks. He added that the generous compensation also meant a disproportionate amount of graduates were heading to the finance industry.
The Governor said it was "rather unattractive" that so many young people turn to the City because of the incentives, in a year that bonuses are expected to total over £7bn. Ian Mulheirn, chief economist at the think-tank Social Market Foundation, said: "Bonuses themselves aren't what draws all the top-performers to the City, it's just high City pay more generally: that isn't going to change any time soon.
"Bonuses are a symptom, not a cause, of short-termism: if you took them away, people would still get promotion and win the respect of their peers for closing superficially good deals."
Alan Clarke, UK economist at BNP Paribas, said there was an element of truth in Mr King's comments, but nothing had changed. "The financial services industry has been highly lucrative for decades, and has always attracted bright young graduates. You can't just blame it on the issue of bonuses now," he said.