Leading article: All in it together – banks included

Share
Related Topics

International investment banking is complicated. A small number of people understand different parts of it. Competitive innovation and the ingenious application of computer power means that this knowledge is changing at an accelerating rate. Hence the growing rewards over recent decades obtained by the possessors of these specialised forms of knowledge. The morality of fairness is conversely simple. We thought bankers were being paid too much; now we know they are.

Last year, the curtain was torn away, and the masters of the universe were revealed as merely human operatives who had no idea what risks they were taking and hence had caused the world financial system to go pop. Never again, was the phrase of the moment.

Some politicians were more adroit at adopting the sentiment. Barack Obama imposed a $500,000 salary limit on banks bailed out by the American taxpayer. Gordon Brown, meanwhile, was impaled on the awkward case of his failure to stop Sir Fred Goodwin, chief executive of Royal Bank of Scotland, walking away from the wreckage with a pension worth £17m. As for bankers' pay in the future, Mr Brown mumbled about how hard it was for governments to interfere in global recruitment markets. Yet how many noticed when, in June, President Obama quietly dropped the half-million-dollar salary cap, while his officials mumbled about, well, how hard it was for governments to interfere in global recruitment markets?

So, yes, it is not simple to design a policy that allows banks to hire the people they need, while protecting the interests of taxpayers who have put up the money to allow them to continue to operate at all. But the evidence is growing that Mr Brown and Alistair Darling, the Chancellor, must try harder. As we report today, the feeble guidelines that they have brought in so far will do nothing to stop the banks, including those now owned by the taxpayer, paying bonuses nearly as high as those before the crash. Unless the rules are tightened, bankers will be unable to escape the suspicion that they are cashing in on the upward stroke of the first V of the W before it all goes bad again.

This is not a matter of trying to apply the simple concept of fairness only to publicly owned banks. As Mervyn King, the Governor of the Bank of England, pointed out in a speech in Edinburgh last week, all banks enjoy the implied public guarantee of being regarded as "too big to fail". With impeccable free-market reasoning, he said: "Encouraging banks to take risks that result in large dividend and remuneration payouts when things go well, and losses for taxpayers when they don't, distorts the allocation of resources and management of risk."

Not only that, but the policy of printing money – known in harder-to-understand and therefore more highly paid circles as "quantitative easing" – has boosted the stock market and in turn, bank bonuses. So the taxpayer is underwriting the bonuses of all bankers, and politicians on our behalf are fully entitled to set the strictest rules practicable that would apply elementary norms of fairness to all banks, whether notionally in the public or the private sectors.

The Government's weakness is exposed by our report today that Sir David Walker, appointed by the Chancellor to report on bonuses, is coming under pressure to insist on tough rules that apply to all banks – because any bank that responds to ministerial exhortation with unilateral restraint is bound to lose traders to banks that do not. The idea that the City of London would lose out from firm rules is unconvincing, but it is true that any individual bank that acts alone would suffer.

In any case, other European governments and the US administration are ready to join Mr Brown and Mr Darling in tougher action. So when Sir David next month recommends strict rules – stricter, we hope, than simply banning the payment of "guaranteed bonuses", which are a contradiction in terms – they should be implemented at once.

But this is still reactive stuff. There remain fundamental questions of banking regulation that are far from being solved. Should retail banking be separated from the kinds of higher casino capitalism that produced the current crisis? Probably. Should the concentration of power in fewer banks be referred to the Competition Commission? Definitely. But for all the technical complexity of these issues, banking bonuses are a simple issue of fairness.

As George Osborne so tellingly, yet so far unconvincingly, put it: "We're all in this together." A noble sentiment that the Government would be well advised to adopt.

React Now

Latest stories from i100
iJobs Job Widget
iJobs General

SSRS Report Developer - Urgent Contract - London - £300pd

£300 Per Annum: Clearwater People Solutions Ltd: SSRS Report Developer – 3 Mon...

KS1 Teacher

£95 - £150 per day: Randstad Education Birmingham: Key Stage 1 teacher require...

HR Business Partner - Essex - £39,000 plus benefits

£32000 - £39000 per annum + benefits + bonus: Ashdown Group: Generalist HR Man...

Trainee Recruitment Consultant

£18000 - £30000 per annum + uncapped: SThree: Do you feel like your sales role...

Day In a Page

Read Next
The Lord Mayor of London Fiona Woolf heads the inquiry  

Why should Fiona Woolf be expected to remember every dinner date?

Mark Steel
Several police officers walk near downtown Ottawa  

Nigel Farage on the Ottawa shooting: It could just as easily happen on the streets of London

Nigel Farage
How could three tourists have been battered within an inch of their lives by a burglar in a plush London hotel?

A crime that reveals London's dark heart

How could three tourists have been battered within an inch of their lives by a burglar in a plush London hotel?
Meet 'Porridge' and 'Vampire': Chinese state TV is offering advice for citizens picking a Western moniker

Lost in translation: Western monikers

Chinese state TV is offering advice for citizens picking a Western moniker. Simon Usborne, who met a 'Porridge' and a 'Vampire' while in China, can see the problem
Handy hacks that make life easier: New book reveals how to rid your inbox of spam, protect your passwords and amplify your iPhone

Handy hacks that make life easier

New book reveals how to rid your email inbox of spam, protect your passwords and amplify your iPhone with a loo-roll
KidZania lets children try their hands at being a firefighter, doctor or factory worker for the day

KidZania: It's a small world

The new 'educational entertainment experience' in London's Shepherd's Bush will allow children to try out the jobs that are usually undertaken by adults, including firefighter, doctor or factory worker
Renée Zellweger's real crime has been to age in an industry that prizes women's youth over humanity

'Renée Zellweger's real crime was to age'

The actress's altered appearance raised eyebrows at Elle's Women in Hollywood awards on Monday
From Cinderella to The Jungle Book, Disney plans live-action remakes of animated classics

Disney plans live-action remakes of animated classics

From Cinderella to The Jungle Book, Patrick Grafton-Green wonders if they can ever recapture the old magic
Thousands of teenagers to visit battlefields of the First World War in new Government scheme

Pupils to visit First World War battlefields

A new Government scheme aims to bring the the horrors of the conflict to life over the next five years
The 10 best smartphone accessories

Make the most of your mobile: 10 best smartphone accessories

Try these add-ons for everything from secret charging to making sure you never lose your keys again
Mario Balotelli substituted at half-time against Real Madrid: Was this shirt swapping the real reason?

Liverpool v Real Madrid

Mario Balotelli substituted at half-time. Was shirt swapping the real reason?
West Indies tour of India: Hurricane set to sweep Windies into the shadows

Hurricane set to sweep Windies into the shadows

Decision to pull out of India tour leaves the WICB fighting for its existence with an off-field storm building
Indiana serial killer? Man arrested for murdering teenage prostitute confesses to six other murders - and police fear there could be many more

A new American serial killer?

Police fear man arrested for murder of teen prostitute could be responsible for killing spree dating back 20 years
Sweetie, the fake 10-year-old girl designed to catch online predators, claims her first scalp

Sting to trap paedophiles may not carry weight in UK courts

Computer image of ‘Sweetie’ represented entrapment, experts say
Fukushima nuclear crisis: Evacuees still stuck in cramped emergency housing three years on - and may never return home

Return to Fukushima – a land they will never call home again

Evacuees still stuck in cramped emergency housing three years on from nuclear disaster
Wildlife Photographer of the Year: Intimate image of resting lions claims top prize

Wildlife Photographer of the Year

Intimate image of resting lions claims top prize
Online petitions: Sign here to change the world

Want to change the world? Just sign here

The proliferation of online petitions allows us to register our protests at the touch of a button. But do they change anything?