Mark Carney, the Governor of the Bank of England yesterday lashed bankers over the forex rigging scandal, and came up with the most radical call yet for reforming bonus payments – declaring bankers’ salaries as well as bonuses should be clawed back.
The Governor, in an echo of his deputy’s recent metaphor, declared: “The succession of scandals means it is simply untenable now to argue that the problem is one of a few bad apples. The issue is with the barrels in which they are stored.”
It was his harshest condemnation of the regular emergence of bad behaviour from the City. Speaking for the first time since last week’s fines, he said it was particularly egregious that the foreign exchange traders were rigging the rates at which currency prices were fixed long after the same behaviour by Libor traders had been punished .
Addressing the issue of clawbacks from misbehaving bankers, he said the industry might have to extend them to fixed salaries as well as bonuses.
“Standards may need to be developed to put non-bonus or fixed pay at risk,” said the Bank of England Governor.
He said international standards may have to be changed so that “excessive risk-taking and misconduct by staff can still be borne by those staff”.
Mr Carney highlighted UK rules which ensure bonuses are deferred for three years and can be clawed back for up to seven years after payment. But he said others – notably the European rule capping bonuses at half total pay – limited the ability to cut back basic pay. His remarks came a week after six banks were fined £2.7bn for rigging the £3trn a day foreign exchange market after the Libor and PPI scandals.
Mr Carney said proposals that bankers be paid in “performance bonds” was a “potentially elegant solution”. That would see bankers’ bonuses and possibly part of their salary paid in bonds of the company with fines taken directly from that rather than the bank’s reserves. This would mean staff, not shareholders, would suffer when the rogues get caught.
Performance bonds are the brainchild of William Dudley, the president of the Federal Reserve Bank of New York, which was itself criticised by a whistleblower for being too worried about upsetting banks such as Goldman Sachs that it is there to regulate.
Mr Carney appeared to be furious about the latest banking scandal – the revelations of the brazen behaviour of foreign exchange traders at some of Britain’s biggest investment banks. “Last week [regulators] fined six banks $3.3bn for misconduct in FX markets: misconduct that went on long after banks had already been fined for abusing interbank interest rate benchmarks,” he said.
“The repeated nature of these fines demonstrates that financial penalties alone are not sufficient to address the issues raised. Fundamental change is needed to institutional culture, to compensation arrangements and to markets.”
He added: “Even six years on from the crisis and public bailouts, triggers for public opprobrium are plentiful.”
The Bank’s own foreign exchange dealer was criticised for failing to act on his concerns about forex rigging.Reuse content