The Governor of the Bank of England warned senior bankers yesterday that they should not pay themselves huge bonuses as the rest of the country suffers a fall in the standards of living.
Sir Mervyn King singled out taxpayer-owned Royal Bank of Scotland for criticism. He said it was unacceptable for "an RBS executive to receive £4m in remuneration". This was an apparent reference to John Hourican, head of the investment bank, who is in line to pick up £4m in long-term share bonuses this year.
UK banks will report their full-year results for 2011 next month when many of them will set their pay and bonus packages. They are under increasing pressure from the Government to show restraint on paying themselves when many small businesses and individuals are struggling to get loans.
Sir Mervyn told the Treasury Select Committee of MPs: "There are four big banks which dominate the market for lending in the UK, and we've been through a crisis where the squeeze on real living standards has been unprecedented. The current squeeze on living standards has been on people who have been in no way responsible for this crisis. I think the reputation of those institutions will be affected if their senior executives reward themselves, particularly in a period when the banks, in terms of their share prices, have hardly been stellar."
Sir Mervyn also rejected a proposal made last October by the Treasury Select Committee that the Bank of England's policymakers should be held accountable by a powerful new internal Supervisory Board. The Governor said he agreed with the principle of a new supervisory body, but argued the role of any such body (which it described as an "oversight committee") should be limited to checking that the correct procedure had been followed by policymakers rather than challenging decisions. A statement from the Bank of England's ruling "court" released to MPs said: "It is vital that the Oversight Committee does not seek to second guess the decisions of policymakers themselves... were the Oversight Committee to be seen to take sides in the policy debate, those policymakers from whom it differed would be less likely to trust as independent its judgement of whether proper processes were followed."
However, there were signs of division on this issue between Sir Mervyn and other Bank officials who were giving evidence to the committee. Michael Cohrs, an external member of the Bank's Financial Policy Committee, said: "Just looking at process can be too sterile."