Chancellor backs BoE call for bank bonuses to be cut

The Chancellor yesterday backed a call by the Bank of England Financial Policy Committee (FPC) for banks to cut bonuses to boost their capital buffers against financial shocks.

The FPC said in the minutes of its last meeting that, faced with short-term risks, banks should sacrifice payouts to staff and shareholders to conserve funds. Instead of reducing loans on their balance sheets, which could starve the wider economy of credit, they should build up their capital reserves, possibly by tapping shareholders, the FPC added.

George Osborne told Parliament that banks "should be using any earnings they have to strengthen their balance sheets if necessary, rather than distribute those earnings in larger bonuses. We need stronger banks, not larger bonuses this winter... I would expect the banking system to follow that advice."

The demands from the FPC and the Chancellor pile further pressure on Britain's banks ahead of a fraught end-of-year bonus round.

Grim economic conditions have cut profit estimates for the banks and big payouts to top bankers will be seen as a kick in the face to people suffering falling general living standards. Adding to the siege on the banks, the Association of British Insurers on Monday demanded the banks cut bonuses instead of reducing dividends.

The FPC's demands came as the Bank announced a new scheme to make funding available to banks if the market for short-term sterling liquidity dries up. Under the contingency plans, banks would be able to bid for funds by putting up top-quality assets as collateral.

The Bank's announcements demonstrate its fears that trouble is in store for Britain's banking system as the eurozone crisis and the weakening economy threaten a new wave of upheaval.

The committee also cast doubt on banks' financial targets and the calculations they make to judge the riskiness of their lending.

The minutes said targets for shareholder returns did not take into account that "new capital regulations should have made bank investments lower risk but also inevitably lower return". The subject will get a full airing at a future FPC meeting.

A further recommendation was for banks to publish "leverage ratios" in the next year showing a simple ratio of capital as a percentage of total loans. The committee said the banks' measure of "risk-adjusted assets" was difficult for investors to understand.

Banks may have to disclose pay packets

The Government turned up the heat on bankers' pay still further yesterday by proposing tougher disclosure for high earners. The Treasury wants to make banks publish details on the eight highest-paid non-board executives with a detailed breakdown of their salaries, bonuses, share options and other pay. About 15 banks would be caught by the requirement, including big foreign lenders in the UK. The companies would not have to reveal the executives' names. If the Treasury plan is adopted they will have to publish the details with their annual reports for this year.

Start your day with The Independent, sign up for daily news emails
ebooksAn unforgettable anthology of contemporary reportage
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Digital Optimisation Executive - Marketing

£30000 - £35000 per annum: Recruitment Genius: The UK's fastest growing, multi...

Recruitment Genius: Financial Reporting Manager

£70000 - £90000 per annum: Recruitment Genius: A Financial Reporting Manager i...

Recruitment Genius: Payments Operations Assistant

£23000 - £25000 per annum: Recruitment Genius: They win lots of awards for the...

Recruitment Genius: Telephone Debt Negotiator

£13500 - £20000 per annum: Recruitment Genius: This nationwide enforcement com...

Day In a Page

Sepp Blatter resignation: The beginning of Fifa's long road to reform?

Does Blatter's departure mean Fifa will automatically clean up its act?

Don't bet on it, says Tom Peck
Charles Kennedy: The baby of the House who grew into a Lib Dem giant

The baby of the House who grew into a Lib Dem giant

Charles Kennedy was consistently a man of the centre-left, dedicated to social justice, but was also a champion of liberty and an opponent of the nanny-state, says Baroness Williams
Syria civil war: The harrowing testament of a five-year-old victim of this endless conflict

The harrowing testament of a five-year-old victim of Syria's endless civil war

Sahar Qanbar lost her mother and brother as civilians and government soldiers fought side by side after being surrounded by brutal Islamist fighters. Robert Fisk visited her
The future of songwriting: How streaming is changing everything we know about making music

The future of songwriting

How streaming is changing everything we know about making music
William Shemin and Henry Johnson: Jewish and black soldiers receive World War I Medal of Honor amid claims of discrimination

Recognition at long last

Jewish and black soldiers who fought in WWI finally receive medals after claims of discrimination
Beating obesity: The new pacemaker which helps over-eaters

Beating obesity

The new pacemaker which helps over-eaters
9 best women's festival waterproofs

Ready for rain: 9 best women's festival waterproofs

These are the macs to keep your denim dry and your hair frizz-free(ish)
Cycling World Hour Record: Nervous Sir Bradley Wiggins ready for pain as he prepares to go distance

Wiggins worried

Nervous Sir Bradley ready for pain as he prepares to attempt cycling's World Hour Record
Liverpool close in on Milner signing

Liverpool close in on Milner signing

Reds baulk at Christian Benteke £32.5m release clause
On your feet! Spending at least two hours a day standing reduces the risk of heart attacks, cancer and diabetes, according to new research

On your feet!

Spending half the day standing 'reduces risk of heart attacks and cancer'
With scores of surgeries closing, what hope is there for the David Cameron's promise of 5,000 more GPs and a 24/7 NHS?

The big NHS question

Why are there so few new GPs when so many want to study medicine?
Big knickers are back: Thongs ain't what they used to be

Thongs ain't what they used to be

Big knickers are back
Thurston Moore interview

Thurston Moore interview

On living in London, Sonic Youth and musical memoirs
In full bloom

In full bloom

Floral print womenswear
From leading man to Elephant Man, Bradley Cooper is terrific

From leading man to Elephant Man

Bradley Cooper is terrific