Responding to the Bank of England announcement on responsibility and accountability in the banking sector, Anthony Browne, chief executive of the BBA, said:
“One banker rewarded for failure is one too many. That’s why banks have already taken steps to right the wrongs of the last decade, cutting cash bonuses by more than 75% and fixing rewards more closely to the long-term health of the business. We also agree that clawbacks can certainly be a useful way to discourage wrongdoing and are in the interests of customers and shareholders.
“We’ll examine the detail of these new proposals with interest, but it is important that any new regulation does not put British banks at a disadvantage when it comes to attracting and retaining the best workers here and overseas.”
Background
Substantial changes to remuneration
- Total bonuses for investment banks were down 55% between 2007 and 2011, according to pay consultants McLagan.
- Immediate cash bonuses were down 77% in the same period. [McLagan, 2012]
- The annual average bonus per employee in the financial services sector fell in 2012/2013, whereas sectors such as the manufacturing of chemicals and man-made fibres saw an increase. [ONS, Average Weekly Earning: Bonus payments, 2012-13]
- From 2015 bonuses will be capped at no more than fixed salary, rising to twice the salary if shareholders give their approval.
- Bankers classed as Code Staff have a significant proportion of their bonus deferred for three years; higher-paid bankers have the majority of their bonus deferred for five years.
- There has been a huge shift away from cash bonuses to rewarding staff with shares – a minimum of 50% of bonuses must now be paid in shares. Giving employees shares means that their interests are better aligned with the bank’s longer term financial health, making them less likely to take unreasonable risks. Whenever employees are given shares whether immediately or a few years later – they then have to hold onto them for at least six months.
- And, if it transpires they took reckless risks or behaved badly, then the deferred bonus can be clawed back.
Sweeping changes in top banking executives
- Since 2007, 90% of senior executives at the major British banking groups have changed.
Additional banking taxes
- Banks paid £3.4 billion through a one off bank payroll tax.
- The banks now pay an annual bank levy, aimed at raising approximately £2.9 billion per annum from 2015/16.
A much safer financial system
- Banks have rebuilt their balance sheets in the wake of the global financial crisis and are now much safer. Banks now hold three times more of the safest form of capital than they did at the beginning of the financial crisis. By 2019, when Basel III is fully implemented, they will be even more robust. The UK’s implementation is significantly ahead of schedule, and accordingly the UK and its banks are among the best placed in the world.
- The banks operating in the UK are much better prepared for a future financial crisis. They now have to hold sufficientliquidity to be able to operate during a period where funding dries up, as happened for some of them in 2007.
- The banks have restructured their balance sheets to reduce exposures to riskier trading assets.
- The industry is determined that taxpayers’ money is never used again to bail out banks.