Richard Lambert, the director-general of the Confederation of British Industry (CBI), called on banks yesterday to agree a "global ceasefire" on bonuses, warning that the impact of a string of multimillion-dollar "transfers" of star traders could be "toxic in the extreme".
Speaking in London about the need to restore trust in the banking industry, Mr Lambert said: "If trust has to be built on a sense of fair dealing, then the combination of pay freezes and job losses in the public sector with large bonuses in the City would be toxic in the extreme.
"This exceptional combination of circumstances will require exceptionally sensitive handling, preferably with the major global institutions acting collectively when it comes to compensation matters, and resisting the temptation to poach disaffected mega-stars."
Previous efforts during the financial crisis to curb bonuses were shot down, with an attempt among banks to agree a freeze failing largely because American bankers objected to the idea. They claimed that such a move would be "communist" despite public funds being used to bail out the sector, which led critics to speak of banks' "privatised gains, socialised losses".
But Mr Lambert said: "The political costs of failing to agree a global ceasefire are likely to be substantial. It won't be enough to say that without a level playing field around the world, nothing can be done. Carrying on with business as normal would seem arrogant and out of touch, and further erode public trust."
Mr Lambert's remarks came just days after a report by the Centre for Economics and Business Research (CEBR) forecast that City institutions planned to spend £7bn on bonuses this year, which helped to reignite the furore over the issue and led to fresh accusations of banks indulging in "casino capitalism".
Mr Lambert insisted that this should stop, saying: "If it's important to restore public confidence in the banks. It is just irresponsible to caricature them as casinos. This overheated rhetoric is having direct consequences on the shape of the banking system and the emergence of new competition.
"Foreign institutions that had been thinking of buying banking assets in the UK are unlikely to press ahead in this atmosphere: I know of one that has already pulled back. This is the exact opposite of what we need – which is dynamic new entrants coming into our market bringing a welcome shot of innovation, choice and diversity."
Mr Lambert rounded on politicians, saying they had deflected on to banks "their shares of the blame" for the financial crisis. "If politicians persist in the argument that it was all the bankers' fault, they will come up with the wrong responses," he added.
He also said bank customers would pay dearly for a banking levy, explaining: "On a rule of thumb derived from the latest Financial Stability Report, £10bn off the bottom line would take about £50bn out of UK lending."
However, Mr Lambert said he now backed the Government's independent Banking Commission. He said there were big questions "still to be answered" and praised the recent issues paper published by the commission as showing a body "going about its task in a thoughtful and balanced way".Reuse content