Bonuses led to "lethal" banking risks

Bankers' bonuses led to "lethal" risk-taking and their pay structure must be reformed and rigorously regulated, politicians said today.

The MPs also slammed the Treasury for allowing former Royal Bank of Scotland Chief Executive Fred Goodwin to leave on a lucrative pension and said he should have been fired rather than rewarded.



In its latest report into the banking crisis that plunged Britain and the world into the deepest recession since World War Two, a cross-party committee of politicians called for bonuses to be linked to long-term performance and shareholder value.



"Sir Fred Goodwin's pension has become notorious, a highly visible emblem of bankers damaging the economy without themselves being financially penalised," the committee said in its report on reforming corporate governance and pay in the financial sector.



The Committee swung the spotlight back onto Goodwin, the former RBS head who outraged the country by pocketing hundreds of thousands of pounds after leading the bank to Britain's biggest corporate loss.



As RBS was bailed out by the taxpayer, Goodwin walked away with an annual pension of over 700,000 pounds. RBS has said Goodwin's pension would have been worth 416,000 pounds had he been fired instead of agreeing to leave early.



The politicians criticised Treasury minister Paul Myners, who was involved in talks with RBS, for letting the RBS board negotiate that exit for Goodwin, blaming in part Myners' "City background and naiveté" about public perception.



The Treasury should have insisted on the dismissal of Goodwin as a condition of providing bailout money to the bank, the committee said.



The report also proposed greater transparency on pay structures and remuneration of staff below board level and a code of ethics for external remuneration consultants in the banking sector.



"Self-regulation or a light-touch approach to regulating remuneration in the banking sector is unacceptable," it said.



The Financial Services Authority (FSA) watchdog has said it intends to require banks whose pay structures do not comply with its code of practice to hold greater capital reserves to cushion shareholders against risk.



The politicians encouraged the FSA to show its teeth, calling for "a greater willingness" to penalise any such banks.



They also agreed that Lloyds Banking Group, which like peer RBS is now part-nationalised after a government bailout, should continue to pay executive bonuses to recruit and retain talented staff -- or risk poor returns for taxpayers.



"There must be radical change in both the culture and regulation of the banking system. Never again should greed be allowed to bring down economies," said Vince Cable, the shadow chancellor of the Liberal Democrats.



The report was published amid public outcry over politicians' expense claims, picked up by the taxpayer, which have included cleaning moats and pools and repairing tennis courts.



The Treasury should have insisted on the dismissal of Goodwin as a condition of providing bailout money to the bank, the committee said.



The report also proposed greater transparency on pay structures and remuneration of staff below board level and a code of ethics for external remuneration consultants in the banking sector.



"Self-regulation or a light-touch approach to regulating remuneration in the banking sector is unacceptable," it said.



The Financial Services Authority (FSA) watchdog has said it intends to require banks whose pay structures do not comply with its code of practice to hold greater capital reserves to cushion shareholders against risk.



The politicians encouraged the FSA to show its teeth, calling for "a greater willingness" to penalise any such banks.



They also agreed that Lloyds Banking Group, which like peer RBS is now part-nationalised after a government bailout, should continue to pay executive bonuses to recruit and retain talented staff -- or risk poor returns for taxpayers.



"There must be radical change in both the culture and regulation of the banking system. Never again should greed be allowed to bring down economies," said Vince Cable, the shadow chancellor of the Liberal Democrats.



The report was published amid public outcry over politicians' expense claims, picked up by the taxpayer, which have included cleaning moats and pools and repairing tennis courts.



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