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How to curb bonuses

Robert Peston | 15:51 UK time, Friday, 17 December 2010

The Bank of England has provided the Treasury and Business Department with both an argument and a tool for curbing bank bonuses.

It takes the form of Chart 5.9 on page 51 of the Bank of England's latest Financial Stability Review, which has the unprepossessing title "Estimated size of total implicit funding subsidy to UK banks and building societies split by size".

This shows the Bank of England's calculations of the monetary value to the big UK banks of the truth, which was revealed in the Great Crash of 2008, that the state won't allow them to fail - that taxpayers will always bail them out, for fear of the catastrophic impact on the economy that would be caused by a collapse in the payment and credit-creation systems.

What the Bank of England has done is to get from the credit rating agencies (who in this case are definitely providing a public service, in the view of the Bank) the ratings for our banks' debts on a "supported" basis and on a "standalone" basis. That is the difference between their perceived creditworthiness with and without the implicit taxpayer guarantee.

The Bank of England then looked at the interest rates that the relevant banks pay to borrow with their "supported" credit ratings, and compared this with the higher interest rate they would have to pay if there were no such taxpayer support.

The Bank then took the difference between those two interest rates and multiplied that difference by all the funds the big banks have raised on the back of their supported credit ratings.

The answer is the subsidy provided by taxpayers to the quartet of big banks, Royal Bank of Scotland, HSBC, Lloyds and Barclays, in the view of the Bank of England.

I hope you are still with me, because what comes next is pretty shocking. The Bank of England estimates that in 2009 alone, the big British banks collectively received a subsidy from taxpayers of around £100bn. And the subsidy in 2008 was around £50bn.

To put it another way, it is quite difficult to see how they could ever generate a profit without this subsidy.

And the Bank was also minded to demonstrate that the taxpayer subsidy for big banks is miles bigger than for smaller ones.

To be clear, the Bank of England acknowledges that there is an implicit taxpayer subsidy for smaller banks too. But it estimates that subsidy as equivalent to less than 1% of all the money borrowed by smaller banks, whereas it represents 2.5% of big banks' liabilities - which means that it is far more important to the big banks than to the smaller ones.

Here's what follows.

As currently constructed, our four big banks would not have much of a business without that taxpayer subsidy.

So in theory, if the chancellor and business secretary wished banks to pay zero bonuses, all they would have to say is that they are planning to legislate such that all lenders to British banks face the risk of losses ahead of any losses incurred by bank depositors.

If this sounds familiar, that's because it is similar to the formulation used by the German government a few weeks ago about a new potential risk of loss for lenders to eurozone governments such as Ireland - which immediately spooked investors and prompted a funding crisis for weaker eurozone states.

So if the chancellor and business secretary were to say, in this way, that taxpayers were no longer standing behind all the debts of banks, the price of borrowing for banks would rise very sharply, in the best case for banks. And in a worst case, the big banks would not be able to refinance all that debt maturing in the coming year (see my earlier note on this) and they would be kaput.

Of course, Mr Osborne and Mr Cable would not wish to bankrupt our banks.

But if they really want to squeeze banks' bonus payments, they might mention to the four big banks that they are keen to find a way to eliminate that £100bn subsidy - and Mr Osborne and Mr Cable might also point out that in the absence of that £100bn, the banks don't really have any spare resources with which to pay bonuses (or even, perhaps, to keep the lights on).

Comments

Page 1 of 4

  • Comment number 1.

    It might be a good thing. Curb the bonuses, let leave those who want to leave, promote the next tier but keep salaries and bonuses capped. More opportunity for many and it may let some stars (economically) shine. Reagan managed it with the "indispensable" air-traffic controllers, perhaps we could do it with our bankers?

  • Comment number 2.

    'How to curb bonuses?'

    Tell them they can have as big a bonus as they like...but they have to eat half of it!

  • Comment number 3.

    Will it happen? Will anything ever happen? The banks have effectively been nationalised. Why are there no laws in force about how nationalised firms have to behave?

  • Comment number 4.

    Never mind the bonuses, this raises the bigger question . Should the UK be a base for any big bank without a public referendum ?. In order to balance the equation, we should be asking the banking industry for a £100 billion ANNUAL bond in case of future disasters.

    We are back to the old chestnut of splitting the high st banks from the "gambling " banks. The answer is obvious but it is going to take strong political will to make it happen.

    PS If the banks do walk away , let them take their data centres with them .. One of the biggest bank has 5 out of 6 of these in the UK or America . Not many companies would be keen to have their sensitive information based in China and would walk if required...

    The big banks want it all their own way and its the taxpayers who are picking up the RISK as Ireland has found out....

  • Comment number 5.

    More skirting and shifting around the edges. The day I see some serious journalism from you Mr. Peston is the day after the last drop of our money has vanished into a bankers back pocket. We are being screwed and the less people know truth the more people in the position of power can ride on the gravy train. It MUST stop.

  • Comment number 6.

    Just who the hell do these people think they are handing over our money to these spivs?

    And these spivs are doing what? Hanging their heads in shame, or demanding more and more money, throwing their own low-wage workers out onto the dole (while that lasts), gambling and attacking whole nations like Ireland, Greece, Spain!

    We are sacrificing, the NHS, our forests, privatising our universities, forcing poor into debt, to leave southern cities or face destitution, withdrawing support from those with disabilities (the DLA), slashing funding to councils (particularly those councils with high levels of poverty, slashing libraries, working towards removing benefits to those thrown onto the dole, just to mention a few catastrophes all to prevent an alleged 'catastrophe'.

    Good grief. We're creating a catastrophe for more people who are already in the midst of one! We have a press and political elite that disparage the unemployed with their crass 'sponger' lablels when those suffering unemployment were delibaretly made so by the elites!

    If we can afford this subsidy then we can afford a far better welfare state than we've got, and by that I mean not only benefits to the unemployed, but libraries, universities, social workers, transport, health care, arts, emergency services, schools, increased minimum wage, longer holidays, and a guaranteed, stimulating job to anyone who wants it.

    If we can't afford all these support systems, then we support people, not fake corporations operating in a casino, these pretend, condem neoliberal job of a fake, scam market.


    Anyone who isn't out protesting is a muppet.
    Anyone who ever votes for any of these main parties is a muppet.

    See you all tomorrow the choice is a Sports Bloc (three legged school sports race, egg'n spoon race - messy on the stock if security get rough! etc around a clothes shop) or a Library Bloc (nice quiet book club in a phone shop) and don't forget to bring some sweeties for the staff who get poverty pay.

  • Comment number 7.

    Just read this....

    "The UK's 18 coastguard stations are to be reduced to eight, with only three operational around the clock. Cutting the number of control centres is intended to modernise the service and save money."


    I remember a similar situation when automation of a certain plant came in around the 80's....

    The argument was, "We can't have people sitting around monitoring the plant when they could be doing more productive work"...or not, as some got paid off.
    The numbers of people in the plant was not great...probably less the 20.

    Now consider the situation in Britain today.....

    We have now got millions of people sitting in front of computer screens (just sitting around one could say)....in both the private sector and the public sector doing what.?....productive work.?....No..... just sitting around.

    This country has changed over a generation from being a productive industrial one to being one where the vast majority of employees are just "sitting around".

    It is even worse in the S.E. ...where all the wealth is concentrated around the city...Millions of people just sitting around in nice centrally heated offices....and when the crack in the veneer appeared.. the "too bigs to fail" were rescued.

    The Government ploughed billions of TAX payers money (or printed QE) into maintaining the status quo of the CITY....This was the same reaction to Wall Street.

    However the most worrisome thing is that, ploughing Billions of pounds/ dollars into supporting those millions of people just sitting around is rather like throwing fuel onto the fire...

    Obviously it is the intention of the Government to continue having the vast majority of employees just sitting around in both the private sector and the public sectors.....Attacking the public sector just means that there will be less employees just sitting around in the public sector....unless of course these very employees decide that it is better to lay off employees who actually do something and are not just sitting around...

    Either way we will still have millions of employees just sitting around....But there are some people who just sit around and are quite smart ,in that they have concocted up grand financial schemes to enable them to pocket vast amounts of money...Keeping in mind that these very smart people are in fact employees and not owners of companies....You must give these employees credit for the way they have enriched themselves...I'm referring of course to the pinstripe spivs that we have just sitting around in the City and Wall Street.

    Now the question must be...."For how long can this situation be sustained"......Millions of employees just sitting around.?....

    Well I would reckon not very long...Already we see that those just sitting around have found it necessary to reduce the living standards for millions of other employees who are not just sitting around, but who in fact do something useful....It is a case of those just sitting around making sure that their cosy little number is maintained at any cost to everyone else.

    Our friendly Government of the day will see to it, that their privaledged friends maintain their cosy positions of just sitting around....and at the same time continue to make loads of money fleecing everybody else.

  • Comment number 8.

    Centralist London Government.....Seems that everybody outside London is going to suffer...But London and The City will carry on regardless....
    QE....who were the winners....The City and Banks...Back to the good old Thatcher days...Loads of money for the City Slickers...Not allowed to fail.
    So we have the privaledged Government dishing out the lolly to their City friends. (The Free market cannot be allowed to fail even tho.' it's full of dinosaurs)...Where is that money coming from.?..
    Ans....QE and public service cutbacks...A slight of hand by our Centralised London Government.
    Just have to hope that the population at large sees through this....It's history repeating itself, except that the figures involved are colossal.
    The S.E will carry on regardless and the other parts of Britain are going to suffer...including the younger generation.
    This is similar to the USA where Main Street is suffering whilst Wall Street continues as normal.
    Can this corruption of public funds continue...This continual propping up of the Market and The City..in the name of efficiency.
    It's blatantly obvious where all the wealth is...The S.E....and this process of wealth redistribution to the S.E has been going on for quite a while now...Probably since the 60's (remember the Beeching cuts)...
    Anyway that is the way I see it and no doubt time will tell...Recapitalise the Banks...Yuch.

    Inflation on it's way, also will adversely affect the rest of the UK...No doubt London will benefit.
    Can someone please explain why getting the masses to buy plastic and electronic goods manufactured in China will get us out of this financial disaster that we are in...The Economists seem to think this is the way....Spend to get out of Debt>!!!???
    Economics for the city spivs and slickers...whilst at the same time, the savers are also being attacked.
    This situation seem to be an attack by the City and the Government, on everbody who are not in the City or the Government....It's almost akin to a Communist regime.!!
    Also considering that 80+% of the Government/ Civil Service/ Media are from a private schooling background.....Just like the school playground where all the priveledged kids huddle together around the sweety stall and prevent the lesser ones getting their fair share...or akin to the strongest pigs getting the swirl before the weaker ones...Just as in Nature...Dog eat dog.
    Just what on earth is this private/ priveledged education producing nowadays...Where are the Statesmen...people that one could entrust with power...All we have now is self interest tied up with the City....Enough said....

  • Comment number 9.

    Well no problem in bearing down on these ridiculous payments to people who make a very questionable to the country's economic and social well-being. We will see! However the debate should not become quagmired in the bonus issue. It is important that the banks are properly supervised and that financial and corporate governance as well as competition are enforced by public sector exemplars.

  • Comment number 10.

    oh for crying out loud, with out the tax payer bailout and guarantees the banks would be insolvent , how hard is it for them to understand, they are also insolvent now based on their asset prices of the money they lent out to the likes of Ireland et al, but the problem is not even the bonuses they plan on taking its the bonuses they have already taken, yeah they might say look at the balance sheets from 5 years ago look at how much we generated, but this was all it was a funny money exercise.

    So now the banks want bonuses for churning debt, the government want to tax us even more, whilst slashing services that we have already paid for, sell off and suck dry any assets they have left to make sure the bankers are sorted , well they can go jump, and the whole of westminster with it. What will the governments function be once it has slashed all the services, cut back on everything bar their own expenses (note the auditor wont sign off westminsters expenses) really do we need to be paying over 50% of our income on a non functioning facility , lets have austerity in bank land and westminster because they are all culpable, they are failing as a government and they failed in opposition and that goes for all the parties

  • Comment number 11.

    Seems to me that the UK has become most proficient at bean counting and ripping people off. So good in fact that there is precious little left to rip off. And the bankers know it. And the government knows it.

    What are the government going to do about it?

    Plastering over cracks just will not do.
    Not do at all.

    So. What are the government going to do about it?

  • Comment number 12.

    5.
    I can understand your frustration, but I thought the article was very good myself,
    again this would be an excellent base for live TV interview like 'how could -any- bonus be justified?'

  • Comment number 13.

    Umm, if I'm the chairman of HSBC I might say 'Go on then, take the guarantee away', watch Lloyds and RBS go to the wall and mop up the remaining business or walk away from the UK, neither of which are completely out of the question.

    Quite clearly, the majority of the £100bn is apportioned to the nationalised banks, so this theoretical leverage that Osborne has is just that, theoretical, and will remain so.

    Frankly, as owners of both Lloyds and RBS the government has the right to appoint the majority of the board, Chairman and CEO and dictate recruitment & remuneration policy, however the political implications of doing so are unthinkable.

    Final outcome, nothing will change more than the big 4 think it has to, in order to avoid any really stringent measures and then only for a short while.

  • Comment number 14.

    Any business in receipt of taxpayers cash should be told that paying any bonuses or pay increases is a condition of avoiding bankruptcy. Any staff that can do better elsewhere are welcome to leave I am confident that banks would have no trouble filling vacancies.

  • Comment number 15.

    So this £100bn is the implicit subsidy from the taxpayer to the banks.

    I wonder if this represents the actual subsidy?

    For the average working Joe or Jane:
    Jan 2009 Average weekly earnings = £444
    Sept 2010 Average weekly earnings = £443
    Increase = – 0.002%

    Retail price index (all items) RP02:
    Jan 2009 210.1
    Sept 2010 225.3
    Price inflation = + 7.2%

  • Comment number 16.

    That's one technical argument ... and one wonders why did the BOE not mention this caluclation previously when bonuses were being paid last year?

    What about doing what the Irish govt said to the Irish rogue banks ... do not pay any bonuses or else ...

  • Comment number 17.

    Must say I'm a bit confused by some of the comments above.

    Obvious thing is to charge a fee for the service that the government provides to the banks. If HSBC or Barclays decide to go off-shore then charge them a HUGE retrospective fee for these services.

    Also make Directors personally responsible for the payment of bonus's and make them pay back any which , over time, prove to have been paid in error.

    Also cap salaries to a reasonable level (say $500k).

    Also stop the activities of dodgy countries who provide off-shore baking services - e:g Switzerland.

    However main thing is to ensure that other countries (US, Japan, EEC - probably enough) buy into this and have penalties for other countries who try to get around these laws.

    We have to reduce the tax on financial activitydue to banks, stockbrokers, insurance companies, etc, etc.

    Only problem is that most of our current government seem to have close ties with this industry.

  • Comment number 18.

    Nice point Dempster - and I agree - have the BOE just discovered this?

    Did they also miss the House Price bubble.

    How much do they cost??

  • Comment number 19.

    ***6

    You are missing the point , there is no money to spend on MORE , its all about spending LESS ....

    I agree with 5 , its the biggest story in the UK today , but it is being discussed on a BBC Blog ...

    It is up to the government to sort out , lets hope they have the conviction to sort out.

    Its all about the taxpayer being compensated for providing a guarantee to the banks and which allows them to borrow cheaper and what the value of this is worth .



  • Comment number 20.

    Of course, Mr Osborne and Mr Cable would not wish to bankrupt our banks.

    Robert they are bankrupt..... It is them on our behalf that are propping them up.

    Do people still think they will relocate ??? without access to our system they cease to exist.










  • Comment number 21.

    To register with a new government body my business partner and I were informed we needed to formalise our business partnership arrangement. There was a section on gifts and how they might be shared/declared on a monetary basis. As many gifts have been bottles of wine boxes of chocolates or home made jam we asked that the clause relating to said gifts was not expressed in £s but calories.

    This was duly agreed and accepted by all parties to satisfy the actuality and keep the government quango happy.

    Perhaps bankers could follow a similar scheme as indicated by At 17:25pm on 17th Dec 2010, DebtJuggler and have there bonuses in calories as well.

    Seasons greetings to all

  • Comment number 22.

    How come we are soo quick to jump on the bankers and continue the banker bashing? Do we harass others who earn large sums of money, namely footballers especially considering that most Premiership football clubs are in debt? Though alternatively do those who are only too keen to cull bankers and their bonuses aware of the income tax these bonuses draw to the Government? Why isnt there a campaign against those who smoke and yet the NHS does not refuse them treatment?
    Least we forget that not everyone is entitled to credit ! Its not a right, its something should be earnt and in times when people may not have the most ideal credit therefore they are either charged more (due to increased risk) or refused credit. I dont see how or why the banks are to blame for this. Why arent we pointing the finger at Property ladder and Location, Location, Location for encouraging people to gamble and take leverged risks on fuelling the property boom. Or for builders, plumbers and electrians for their part in ramping up prices and fees. But instead people like to banker bash, its a socially acceptable thing to do. Higher taxes are forcing companies to locate outside of the UK, we dont have anything other than financial services to offer the world and certainly cant compete with the BRIC countries for lower labour costs or resources. So i urgue you to be thankful for the last decade and a half of growth and success that these "terrible" bankers have brought the UK and the HUGE amounts of tax they have paid.
    The property bubble and sub prime mortgages were caused by joe public'c own greed and like any form of credit, its available at a price. Believe me, i do see that bankers did things wrong, but the Labour gov refused to stop 100% mortgages even after the credit crunch had happened and still to this day there is no legislation stopping it. If your looking to blame people, look to blame they person who decided to buy 2,3,4,5 properties, leveraging one on the other. No only did/does it make house price affordability difficult, it adds to the deck of cards that may come tumberling down when they default on one property. When you can ask yourself if you werent a person looking for that next goldern goose can you then continue to harp on about bankers. It was a very very small number who were/are involved in the mortgage market.

    May i also mention what Gordon Brown did with our countries gold reserves.Brown offloaded the gold at a 20-year low in the market — now nicknamed the “Brown Bottom” by dealers. The 17 auctions achieved prices for the gold of between $256 and $296 an ounce, with an average of $275. Its currently trading at $1400 an ounce. So who is trying to play the financial markets? This sale cost the country $8b+

    When i hear people demanding why their money is going to the bankers i often wonder on a relative value how much they have contributed to the system vs the bankers? Most of the people employed in the finance sector have private medical care paid for by the business saving the tax payer, also private pension schemes again ensure they reduce the burden on the state.

  • Comment number 23.

    19. At 18:17pm on 17th Dec 2010, hughesz wrote:

    No. I'm not missing the point.

    What do you mean there is no money left? What planet are you on?

    Is there some immutable law that physics has yet to discover? Just give a massive tax bill to the spivs. doh!

    Let them complain. What are they going to do, protest in front of the RoboCops in front of Parliament and risked being accused of being unwashed? I don't think so!

  • Comment number 24.

    This all sounds very interesting, until one takes into account Robert Peston's previous entry. If the UK acts unilaterally to curtail banking bonuses and direct banking activity our "friends across the water" will all too happily poach UK investment bankers and any UK banking customers fearful of not making a fust buck!

    So, in truth, is this "meeting" next week just a show for the media, and therefore fodder for the electorate, as a show that the government, rather than the bankers, are really in charge? I am minded to think that the true objective of the meeting will be to find a way to continue to pay bankers their bonus's without using the word bonus.

  • Comment number 25.

    #22 Seekingalpha

    "When you can ask yourself if you werent a person looking for that next goldern goose can you then continue to harp on about bankers."

    I didn't take Sid's money either!

    Do I have your permission to complain about bankers' bonusses?

  • Comment number 26.

    Oh yes Robert the bonuses will be paid albeit behind a political smoke screen. I wonder if the bank of England have started considering the possible end game or continue to be behind the curve?

  • Comment number 27.

    #22 Seekingalpha


    Have a cuppa and settle down in a comfy arm chair. You've much reading ahead. A whole back catalogue is here on Peston's Blog and always available to latecomers.

  • Comment number 28.

    [Unsuitable/Broken URL removed by Moderator]So, based on the above, and the analysis done by PWC, the Govt provides an implicit £100Bn CDS on UK Bank Debt, to guarantee the £53Bn in revenue that it recieves annually from the financial services sector.

    Based on that, the banks would need to be close to collapse every 2 years for it to be bad business.

    Not only that, but the implied bailout has been proved to be an equity injection, that allows for sale once stabilised - currently in profit on the LBG holding, and worth 35Bn on RBS...

    Hardly the measure of doom and gloom and devil-banking that Robert seems to be representing.

  • Comment number 29.

    As far as i can tell from the banks annual accounts the loans to deposits ratio (which is what matters here) is (for end 2009):

    HSBC = 89%
    Lloyds = 169%
    RBS = 134%
    Barclays = 82%

    Which does rather suggest that HSBC and Barclays should not be included in your story at all. (although given that reading bank R&A's is like going though treacle I could be taking figues that are comparing apple with combine harvesters.) (but dont let facts get in the way of your story - just hammer all banks anyway)

    My other though is that if there really is a subsidy by govt of banking services then the logical thing is that bank account fees should be much higher - Interest rates on mortgages should probably double to ensure banks remain in profit/stay in business

  • Comment number 30.

    These banks are referred to as UK banks but in what way are they UK. How much of the book is actually related to overseas. Why should the UK taxpayer be subsidising risks taken overseas. Oh it bounces back on the books here. Fine, time to split the books and take care of the local problem. There is nothing unusual about this, businesses do it all the time. Small banks better than big banks in subsidy terms says it all. It says where the problem is and why.


  • Comment number 31.

    Attaboy - sort 'em out!!

  • Comment number 32.

    interesting how so many commentators are critical of the banks for lending and yet make no criticsm of the borrowers who ultimately were unable to repay their debts!
    how irrational is that?! Banker bashing is a great way of diverting attention from the fact that the last government stopped controlling the banks in the manner they used to be controlled. That was a fatal policy error by Gordon Brown.

  • Comment number 33.

    18 Andywr:

    'Nice point Dempster - and I agree - have the BOE just discovered this?

    Did they also miss the House Price bubble.'

    No, they had the graphs before 2005. They were constrained by Browns system and had a narrow remit. Anyway you only have to monitor the Land Registary returns published monthly - the number of transactions tells you all you need to know. You dont even need to know the prices realised.

  • Comment number 34.

    32. At 19:25pm on 17th Dec 2010, rmasnr wrote:

    Nope we are not distracted at all from neoliberal policy makers (no matter what colour of badge they wear).

    The bankers are merely a subset of neoliberal muppets, as are the politicians who followed from the days of Thatcher and Reagan.

  • Comment number 35.

    #27 brilliant replay.

  • Comment number 36.

    32 rmasnr:

    'Banker bashing is a great way of diverting attention from the fact that the last government stopped controlling the banks in the manner they used to be controlled. That was a fatal policy error by Gordon Brown.'

    Yup. But that does not excuse the banks and in particular their demand for subsidy.

    Liar loans need liars. Yeah. But why offer them. Liar loans need somebody to loan them. 49 percent of mortgages at peak where liar loans, sorry, self cert.

    The question is how do you control a multinational bank which plays one nation off against another, and is still doing that right now. You can't do it by national regulation, it requires international regulation.


  • Comment number 37.

    Well if we are paying into the banks, can I opt out and have my money back to pay for Christmas?

  • Comment number 38.

    The public profile of bankers is now pretty much carved in stone. Their PR machine seems to have ground to a halt in the face of national outrage.

    Whether they like it or not, the good times are over. Their in rehab, and with luck, they'll emerge fitter, wiser, and better able to lead a useful life.

    Sure, some will abscond and leg it to other pastures - but they will not be missed. Let someone else pick up the tab for their foolish behavior!

    In the meantime, we must do everything we can to rid the remainder of the 'bonus' habit. It is insidious, destructive, and breeds dependency.

    It is not normal behavior!

  • Comment number 39.

    > what comes next is pretty shocking. The Bank of England estimates
    > that in 2009 alone, the big British banks collectively received a
    > subsidy from taxpayers of around £100bn.

    I'm shocked that it's only that much. I think it is much, much more. That's why I want to scalp the bankers, never mind give them a haircut.

    Look, it's time to get real with these geezers. They have to accept no bonuses whatsover, and average wages or less.

    If they obey us, their industry might be allowed to survive. If they continue to be truculent, then the public will shut them down.

  • Comment number 40.

    38. At 19:48pm on 17th Dec 2010, TonyH wrote:

    > some will abscond and leg it to other pastures - but they will not be missed.

    Oh yes they will! The less there are, the less subsidy we pay. We'll notice they've gone alright - we'll be dancing all the way to the cashpoints.

  • Comment number 41.

    40. At 19:52pm on 17th Dec 2010, Jacques Cartier wrote:
    38. At 19:48pm on 17th Dec 2010, TonyH wrote:

    > some will abscond and leg it to other pastures - but they will not be missed.

    Oh yes they will! The less there are, the less subsidy we pay. We'll notice they've gone alright - we'll be dancing all the way to the cashpoints.

    ==================================================

    How insensitive!

  • Comment number 42.

    @ 29. At 19:14pm on 17th Dec 2010, okeen wrote:

    > Interest rates on mortgages should probably double to ensure
    > banks remain in profit/stay in business

    Well, nobody wants greedy bankers to profit very much, do they? We want high interest rates for lenders and low ones for borrowers! Bankers have to eat, so there should be a tiny gap between that they can live on. Just about live on, mind you, if they work very hard indeed and are very efficient.

  • Comment number 43.

    Please don't tell me that you have fallen for the BoE's latest contortions of an argument. Funny how the BoE and the Governor are never to blame, nor the government (except one that's lost an election), nor the regulators.

    Apparently all we need is revenge for the alleged misdeeds of the greedy bankers, oh and a Mr Mainwaring sitting in a branch on every street corner and everything will be fine. All our houses will go up in value indefinitely, our real incomes will rise endlessly and there will be loadsa cheap credit to buy all this cheap plastic stuff from abroad!

    Hmmm, I don't think so. I deeply suspect that to paraphrase 'Banker bashing is the opiate of the masses!' talk about cutting off our nose to spite our face! This really isn't Rocket Science. Our biggest banks are being asked to lend us more money than we save with them. Ergo they have to go and find it. Until recently the cheapest place to do that was abroad, but apparently they aren't so keen to lend anymore. If nobody stands behind them then those loans get more expensive (as the Irish are finding out). We don't seem all that keen to hand our loans back either - and there are many who say a bright future depends upon us taking more from our banks. Something has to give - either we save more and borrow less, in which case our (smaller. poorer and lower bonus) banks can stand on their own, or we demand our credit to live beyond our means as a country in which case somebody has to stand behind that credit.

    The argument that you quote from the BoE is just a construct. The current system and levels of lending are as desired by the BoE and the government and since it's fa beyond the resources of savers in this country to fund that level of lending their support is indeed implicit - they cannot then pretend that have no responsibility for ensuring that it's funded. The Irish have just discovered how frustrating it is to have to borrow on commercial terms from others (including us making a pretty penny out of their misfortune, a much better deal than we managed with Iceland, but then possession is 9/10's of the law?). By all means withdraw the implicit support and watch the banks decamp and deleverage. You can do as you wish with your banks (Northern Rock, Bradford and Bingley and even RBS though it's not owned outright and minority shareholders do have rights - but Lloyds is not majority owned by the government, I should know I'm still sitting on a thumping loss as a shareholder in Lloyds). Frankly speaking as a saver and investor I'd enjoy watching the carnage, the cheap credit junkies have had it their way for far too long now and it is long past time that faced up to the realities of our addiction to credit rather than trying to distract ourselves by baying for the blood of others.

  • Comment number 44.

    At 20:04pm on 17th Dec 2010, You wrote:

    'Swiss banking giant UBS has issued its staff with a 44-page dress code, covering everything from the colour and size of suits to dietary tips and the length of toenails.

    Staff are also advised on appropriate underwear and hair dyes.

    The code only applies to client-facing staff, and UBS said it had been "misunderstood".

    Reportedly the brainchild of top executives, the code is part of UBS's attempts to improve its image.'

    More bank exec guff at -

    http://www.bbc.co.uk/news/business-12023033

    Good to see the top execs are on the ball and live in the real world. I particularly like the obsession with underwear and toe nails. I am expecting a 44 page advice from the same source as to how I should dress and what underwear I should wear etc if I want to bank with them.

  • Comment number 45.

    my thoughts almost exactly - when the banks need to do their £500 billion refinancing over the next few years, perhaps they will finally realise that it would have been in their own interest to hold on to these bonus payments...

  • Comment number 46.

    Jaques - just wondering, do you like bankers?

  • Comment number 47.

    29. At 19:14pm on 17th Dec 2010, okeen wrote:

    As far as i can tell from the banks annual accounts the loans to deposits ratio (which is what matters here) is (for end 2009):

    HSBC = 89%
    Lloyds = 169%
    RBS = 134%
    Barclays = 82%

    --------------------------------------------------------------------------------

    Shh - don't bother people with some facts supporting any of the banks. Haven't you read the epic tomes on this blog over the past year or two? They're all the same, don't you know?

  • Comment number 48.

    44. At 20:10pm on 17th Dec 2010, Not Buzz Windrip wrote:
    At 20:04pm on 17th Dec 2010, You wrote:

    'Swiss banking giant UBS has issued its staff with a 44-page dress code, covering everything from the colour and size of suits to dietary tips and the length of toenails.

    Staff are also advised on appropriate underwear and hair dyes.

    =====================================================

    UBS - As in UnBelievably Stupid?

    As customers, would we be entitled to check that they are complying with corporate policy?

    This is an important point!




  • Comment number 49.

    ...43 mallery "Our biggest banks are being asked to lend us more money than we save with them. Ergo they have to go and find it."

    I'm afraid you haven't been reading around these blogs long enough, this is not how the banking system works. Have a look at

    http://www.youtube.com/watch?annotation_id=annotation_942534&feature=iv&v=z5vC_8azMFk

    As this explains the Banks can simply make up as much money as they can find people to lend it to. Think about what you've seen, then do something about it. Personally I closed my bank account and moved to a Building Society and lobby your MP to change the way the banking system works. At the moment it's a real pyramid (or Ponzi if you prefer) scheme and it makes bankers rich at the taxpayers expense.....

    A.

  • Comment number 50.

    Easy solution, charge the Banks the same percentage for this overdraft facility, from the Bank of England, they charge their customers.

    No bonuses or pay rises until the loan is repaid.

    I am sure that their super smart employees should be able to respond to the challenge, to restore their bonuses. It would be interesting to speculate on how long it would take them, the cream of banking surely needs no longer than 2 or 3 years, unless the cream is a little sour!

  • Comment number 51.

    #29. At 19:14pm on 17th Dec 2010, okeen wrote:

    As far as i can tell from the banks annual accounts the loans to deposits ratio (which is what matters here) is (for end 2009):

    HSBC = 89%
    Lloyds = 169%
    RBS = 134%
    Barclays = 82%

    ----------------------------------------------------------------------------

    Can you tell us how you've calculated those figures because I feel a Victor Meldrew "I don't believe it" moment coing on. When you say loans to deposit ratio are there qualification for the type of loan and deposit or are you just looking at aggregate balance sheet totals.

    I only ask because if your saying for every £100 lent HSBC and Barclays have £89 and £82 respectively on deposit this doesn't agree with their capital ratio's. I would also have thought RBS would be a lot higher given their recent marked losses as there would have been a withdrawal of the provision made for their bad debts.

    Alternatively I may not be interpreting you're figures correctly, so can you add a bit of spice to menu please.

  • Comment number 52.

    "What the Bank of England has done is to get from the credit rating agencies (who in this case are definitely providing a public service, in the view of the Bank) the ratings for our banks' debts on a "supported" basis and on a "standalone" basis. That is the difference between their perceived creditworthiness with and without the implicit taxpayer guarantee."

    -------------------------------------------------------------------------------

    "perceived creditworthiness"

    Nuff said, here we go again!!

  • Comment number 53.

    To 29. At 19:14pm on 17th Dec 2010, okeen

    The previous fractional reserve (reserves to loans) was around 3.0%.

    It is to be increased by Basel III

  • Comment number 54.

    [Unsuitable/Broken URL removed by Moderator]22. At 18:27pm on 17th Dec 2010, Seekingalpha wrote:
    'How come we are soo quick to jump on the bankers and continue the banker bashing?'

    It's not about banker bashing, its about the debt based monetary system.

    A short animated film by Paul Grignon, ‘Money as Debt’ (link below).
    http://video.google.com/videoplay?docid=-2550156453790090544#

    The documentary Secrets of OZ (link below)
    http://www.youtube.com/watch?v=U71-KsDArFM&feature=related

    And finally a group who wish to change it for future generations (link below)


    Take you a while to watch the lot and visit the last website, but I suspect you'll find it interesting, if nothing else.

  • Comment number 55.

    43 mallery "Our biggest banks are being asked to lend us more money than we save with them. Ergo they have to go and find it."

    Funny that, UK savers deposits were in balance with UK borrowers loans until about 2000 and Incapability Brown really got motoring and the banks piped in the funny munney from the US etc etc. And all that munney got thrown on the housing market like petrol on a fire. And when FTBs got priced out BTL was invented to replace FTBs -quoted as such aty the time - and then multiples were cranked up to keep the fire burnin' the funny muney flowin' and then self cert liar loans were brought in because only liars could afford the loans. Gordon was well pleased with the revenues from stamp duty and Tony said Hey why not up the duties Gordy. Meanwhile a guy called MP Robinson wuz sayin' Gee this is good Tony the tax on bank bonuses is funding the schools upgrade programme. Spiffin'. Then 'I promise to pay the bearer' sort of rubbed off the notes. Course, nobody could have seen it coming or notice the 30 percent divergence between productivity and dosh.

    Now Gordys got all clairvoyant and saying there will be a problem next year. Hmm.

  • Comment number 56.

    The Article and the mostly hysterical comments are very wide of the mark.

    With easy credit, 100% mortgages for pretty well anyone who wanted them, little or no supervision from either the BOE or the pathetic FSA, everyone, bankers,mortgage brokers, loan companies et al, made hay. Did we ever hear a single word of public complaint over the levels of easy credit? I think not.

    The greedy banks were only a part of the problem; the real culprits were the politicians, the BOE and the FSA.

    By all means drive the banks out of the UK,and impose unworkable restrictions on them. Then see what happens - no credit for anyone, and another couple of million on the dole queue.

    The BOE is essentially saying that the banks are receiving a hidden subsidy. It is like saying that if a small company had a bank overdraft at 8%, but the bank took it away, and the company had to go out and borrow elsewhere at 15%, then the bank is giving the company a hidden subsidy.

    What complete tosh. A meaningless theoretical excercise. Quite frankly, I wouldn't employ the BOE "whizzkids" to make the tea.

  • Comment number 57.

    NorthSeaHalibut wrote: "if your saying for every £100 lent HSBC and Barclays have £89 and £82 "

    No this is the wrong way round - they have £100 of customer deposits (and maybe long term capital, depending on definitions) for every loan made to customers. The remainder is lent to other banks and central banks.

    Lloyds and RBS are lending out vastly more money than they can get from customer deposits which is why they are so messed up.

  • Comment number 58.

    Is there no other better purpose to which these bonus payments could be directed.

    Perhaps
    Those that are disabled.
    Those young lads in the armed forces that have suffered injury.

    If we have by our support created this money, which would not have been created otherwise, is not possible a more beneficial direction could be found for it.

  • Comment number 59.

    To 57. At 21:20pm on 17th Dec 2010, okeen:

    Banks do not lend out depositors money.
    The deposits are the reserve.

    All money loaned out is newly created money.
    Which gets extinguished when it is paid off.
    The interest covers the bank’s overheads and profit.

    The more loans the more interest.
    The more interest the greater the profit.

    It all works swimmingly well until you get defaults.
    Default in repayment of ‘capital’, becomes a loss to the bank.

    As the promise to pay sits on the plus side of the balance sheet and the money created from nothing sits on the negative side.

    Just because the ‘promise to pay’ fails, doesn’t mean you can evaporate away the negative side of the balance sheet, (the money that has been created).

    If lots of promises to pay fail, the negatives will ultimately outweigh the pluses and the bank is insolvent and fails. All the shareholders and depositors lose their money.

    Under normal circumstances the threat of people defaulting was enough to limit the extension of credit to those very likely to repay it.

    However between 1997 and 2007 for reasons that are unknown, lending money to people who were unlikely to repay it became common practice.

    Creating money against a ‘promise to pay’ works well providing that the creator suffers the loss if the promise to pay is no good. Because this naturally limits the amount of money that can be created.

    However we’ve gone past this point. We’ve allowed banks to create money against unsound promises to pay, and then ‘the people’ have been forced to take the debtors place when the promise to pay failed.

    And the link I missed out last time for Seeking alpha was: http://www.positivemoney.org.uk/

  • Comment number 60.

    What on earth are the BoE doing digging this up , and why on earth are you digging this up,Robert?
    It is nuts.
    It simply provides proof to competitor banks of the value of the rating the UK banks were given.
    Which makes it look like an unfair subsidy of a homegrown company by an EU country.
    Which increases the penalty payable by that company in the form of being broken up further and sold off at a knockdown proce to competitors , in the same way that Santander was able to buy up huge chunks of our banks for a song.
    If you wanted to shoot yourself in the foot as a country you couldn't do it better.
    Those geniuses in the Boe and the Treasury , who have commissioned this report, will hamfistedly slash the future profitability of these viable UK banks and thereby reduce bonuses and therefore future UK tax receipts.
    And this will also reduce the value of the shares the government holds in these very banks.
    Bank shares have taken a pounding in the past few weeks.
    If people knew this report was coming ,could there have been a bit of insider trading on shorting the shares?
    And wouldn't competitor banks be very interested too?
    I trust no-one, and do not believe this is simply about reducing bonuses.

  • Comment number 61.

    #57. At 21:20pm on 17th Dec 2010, okeen wrote:
    NorthSeaHalibut wrote: "if your saying for every £100 lent HSBC and Barclays have £89 and £82 "

    No this is the wrong way round - they have £100 of customer deposits (and maybe long term capital, depending on definitions) for every loan made to customers. The remainder is lent to other banks and central banks

    ----------------------------------------------------------------------------

    Thanks for the reply, I see which angle you're coming from now.

  • Comment number 62.

    '56. At 21:16pm on 17th Dec 2010, trevsbestfriend wrote:
    The Article and the mostly hysterical comments are very wide of the mark.

    With easy credit, 100% mortgages for pretty well anyone who wanted them, little or no supervision from either the BOE or the pathetic FSA, everyone, bankers,mortgage brokers, loan companies et al, made hay. Did we ever hear a single word of public complaint over the levels of easy credit? I think not.

    The greedy banks were only a part of the problem; the real culprits were the politicians, the BOE and the FSA.

    By all means drive the banks out of the UK,and impose unworkable restrictions on them. Then see what happens - no credit for anyone, and another couple of million on the dole queue.'

    And the neoliberal policy of keeping them in business has meant what, that all those who want jobs, use public services, our universities etc have what, precisely?

    Why don't you perhaps consider starting here:

    http://www.youtube.com/watch?v=g-wHipDwvgk
    or
    http://www.youtube.com/watch?v=SgFlJjnULh0
    or
    http://www.youtube.com/watch?v=wfpr0DCQ-dA

    The Latinos have been there and done that. Here's an important mantra to live by: Why bother making the same mistake someone else already has? Easier just to learn from others.

  • Comment number 63.

    If I want to get a mortgage or a loan , I want it from a strong ,profitable bank with well-paid, motivated, happy staff who deserve a stonking bonus.
    I do not want a loan from a dodgy bank hater from the Wizard of Oz.
    Iwould like to get it from a strong UK bank.
    And I want recognition that if a bank has a million mortgages at average now of 50% loan-to-valuation then it is actually very secure, and that even at 90% and 95% loan-to valuation, 99% of borrowers are good for their word.Their homes depend on it.
    The bundles of loans have to be valued upwards.
    We need rising house prices again.We have tried slumping and undervaluing and it doesn't work.
    As George Michael says, you gotta have faith, and we need it more than ever.
    Maybe it's time we looked at the internet and started househunting again in the New Year.
    Stasis is not a good basis for the future.
    Funny how bank profits were much higher when loans were more competitively priced and people saw value for money and opportunuty rather than a dead duck.
    I am so bored with doom and gloom and I suspect the country is about to move onwards and upwards again, in spite of the idiotic efforts of the the mean-spirited depressives in the coalition.
    If anyone needs to buy a home, now is the time to get one.......prices are gonna rocket!
    And let's stop blaming banks for all our woes ..... if we were not so down in the mouth there would not be a problem.
    Why is Britain so moany at the moment?

    Martin Lewis had a point after all.
    The National Psyche needs a lift ,and it needs leadership, and so far we are not seeing it.
    We are not getting it from Cameron and Clegg.
    We won't get it from Milliband.
    What on earth will help us?

    We are just going to have to cheer up ourselves, 'cos nobody else is going to do it for us.

  • Comment number 64.

    @ 56. At 21:16pm on 17th Dec 2010, trevsbestfriend wrote:

    > By all means drive the banks out of the UK,and impose unworkable
    > restrictions on them. Then see what happens - no credit for anyone,
    > and another couple of million on the dole queue.

    They did it to themselves when they went mad with greed. It's better to cut them loose now, and get rid, than stagger on with that millstone around our collective necks.

    Good riddance to bad rubbish, as we like to say up north.

  • Comment number 65.

    59 Dempster

    'Creating money against a ‘promise to pay’ works well providing that the creator suffers the loss if the promise to pay is no good. Because this naturally limits the amount of money that can be created.'

    And there you have stated that there is effectively nothing with the system, it is the control of the system either voluntary (bank) or involuntary (regulator) which is key. If the banks (not all at fault) had been accepting downside risk assessment figures and regulation had been functioning corectly then this would not have happened.

    The expansion was drive by a number of mechanisms and ambitions but the concealment of the source of money and the nature of loans, ie a sophisticated fraud. There is an interesting gambling mentality where 'success' followed by 'success', whether for the right reasons or not, leads to overconfidence and recklessness. Barings showed that.

    The removal of risk via the bailout together with the misplaced idea of HMG that they can tell a private business what to do is part of the current problem. Together with the somewhat quaint HMG idea that RBS must also be run independent of HMG direction despite the fact it is majority owned by the taxpayer. The fact is the banks have the government over the barrel, not the other way around. Possession is 9/10ths.

    This was a clear failure by government to understand its duty is regulation not de facto partnership with commercial bodies. Wikileaks has informed us that there is at least one senior opinion that the board of one bank failed in its obligations. that has to be place alongside the FSA opinion that nothing wrong as such was done. Bearing in mind that the same FSA was part of the regulation mechanism that failed.

    If you create the illusion for a consumer that all debt can be matched by growth in asset prices and that each householder can have his or her own bank to print money without a downside then madness follows. If you look at the post 2000 GDP figures everytime they looked like stalling there was apparently either a government or financial sector initative to try and push things onward and upward. Basically a double or quits repeat because a peak was looming. It looks to me that the recession was due to start in 2005 but was pushed back to 2008. The postponing of the event just made it much much worse.

    The whole culture started in the US and appears to have been aped across the western world instead of facing up to the manufacturing decline pressures due to the East.

    If you go back to the GDP growth figures and take the bubble away then what you have around you is the expected environment. That is the whole reason that the talk of economic recovery in the conventional historic sense is misplaced.

  • Comment number 66.

    Bonuses are a side issue.

    The real question is: What sort of society do we want to work towards? Do we want to increase the difference between rich and poor in our society or not?

    Bonuses are irrelevant if the British people have any system of joined up values. Concentrating on bonuses describes the British people as stupid and easily diverted from the real issue.

    We need, I think, to get a grip and think about the real issues and that is as much about footballers as it is bankers.

  • Comment number 67.

    "60. At 21:47pm on 17th Dec 2010, onward-ho wrote:
    What on earth are the BoE doing digging this up , and why on earth are you digging this up,Robert?"

    Hey onward-ho, what planet do you live on? Are you suggesting a publically available report on the BOE website which is of national and international importance shouldn't be commented on by a journalist???

    or may be you mean it should be censored?

    or may be you mean the BOE should not prduce the report (what are central banks for after all) and should just say "everything's fine, trust us"?!





  • Comment number 68.

    60 onward-ho

    Yes. However I doubt other countries are in a position to crow much. I suspect the figs are not brilliant wherever.

    The media look to be fed info and repackage it and people look to feed it. In many cases what is fed is deliberately fed with an objective. The only true news is something somebody does not want you to hear. If they want you to hear it, its not news its a release.

    Incidentally the faux Bhopal compensation story to embarass Dow shows how easily the media take a feedline.

  • Comment number 69.

    63. At 22:15pm on 17th Dec 2010, onward-ho wrote:
    ‘We need rising house prices again’

    Well that’s an interesting point onwardho……….but, how will the next generation ever pay for them:

    For the average working Joe or Jane:
    Jan 2009 Average weekly earnings = £444
    Sept 2010 Average weekly earnings = £443
    Increase = – 0.002%

    Retail price index (all items) RP02:
    Jan 2009 210.1
    Sept 2010 225.3
    Price inflation = + 7.2%

    Water, food, clothing, shelter (houses), the essentials of life.

    Rising house prices is just inflation, and if you’re wage isn’t keeping up with it, then eventually, you can’t afford shelter.

  • Comment number 70.

    65. At 22:21pm on 17th Dec 2010, Not Buzz Windrip wrote:
    A long blog, but agreed.
    So now what?

  • Comment number 71.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 72.

    63 onward-ho

    I am entirely positve, profitable and in demand. That does not mean I need 'faith'. Talk will not get house prices up when they are overpriced because the previous price was based on fraud. Personally I do not think recovery will be really evident until housing recovers and that will take years.

    The problem is that parts of the economy are functioning. Parts are not. The history of recesions is that areas hit have difficulty recovering and the recovery comes from the bits that are functioning expanding. The areas hit often where heading for trouble and the stresses imposed by a hostile recessionary environment are just too much and take the fat out of their system.

    I agree there is a psychological problem. But the thing that got us here was also a psychological problem.

    By all means be cheerful. Survivors usually are cheerful.

  • Comment number 73.

    "63. At 22:15pm on 17th Dec 2010, onward-ho wrote:
    We need rising house prices again.We have tried slumping and undervaluing and it doesn't work."

    I thought the problem was we tried booming and overaluing and it doesn't work?

  • Comment number 74.

    Well we can improve the staff, the processes and the ethics of banks for a start!
    'If Ocampo's claim about Bashir's fortune is correct, Sudanese funds being held in London banks amount to one tenth of annual GDP in Sudan, which ranks fifteenth from bottom in the UN's index of the world's poorest countries.'

    If this is true, did this London Bank ask for ID, utility bill, passport etc?

    If this is true, didn't they alert the police?

    If this is true, what did they think, that the President of Sudan and accumulated billions, by doing what precisely?

    And these muppets are being suppsidised to do what, be more incompetent than anyone working in the state sector!

    Let the cheer go up 'My, what a waste, we need some cuts, some lay-offs!'

    And don't forget some prison sentences.

    http://www.guardian.co.uk/world/2010/dec/17/wikileaks-sudanese-president-cash-london?utm_source=twitterfeed&utm_medium=twitter

    Thanks Julian et al.

  • Comment number 75.

    there's a good article here "Profit & loss ‘reversal’ at RBS" (just under half way down the page)
    http://ftalphaville.ft.com/blog/page/4/

    which explains how banks avoid marking down their losses due to the changed mark-to-market rules. (which equals less losses/more profits on the accounts) I am not qualified enought to comment.

    Dempster what do you think?

  • Comment number 76.

    Being a generally financially inept pensioner am I missing something?

    The chancellor and PM are telling us that the country is broke.
    The chancellor and PM are giving the banks around a £150 billion over 2 years.

    Take the money back.
    Don't pay bonuses.
    Let them go to the wall if they can't survive without help.

    Set up a Government controlled bank (It used to be Girobank before some looney sold it off).
    Employ ex-bankers on sensible wage structure or let them go to Chinese banks if they can convince their new employers that they wont bankrupt them

    QED country isn't as broke as we are being told in fact most of the promised cuts should not be needed.

  • Comment number 77.

    70 John Dempster.

    Forget your reform and focus on you and your family. I'm not saying dont speak or think about reform. Analyse what functions in this economic environment. There are opportunities. The opportunity is the key. The internet is the communication tool that takes you to billions of people. If you dont have the capital to start middle size then start small. Very small. Trade very small. You could look for stuff you can make and put on a well known auction site. I didnt say make it - I said look for it. Monitor. Go thru sector by sector. Log and watch. Look for the less obvious stuff/sectors. You dont swim at the deep end first go. Dont take any notice of marketing take notice of what people buy. Actions not words are the thing to follow. Expansion of what is possible.

    Just an opinion. By all means file it in the waste bin. Your not stupid. Youre a grafter. You might be doing this already. If so tell me to shut up. doesnt bother me.

    I'm off.

  • Comment number 78.

    #63. onward-ho wrote:

    "We need rising house prices again."

    Very funny - preparing for your slot on Have I got news for You! I hope you used a credit card to buy whatever you are on - so that you can get your money back!

    You are clearly jesting so I will refrain from repeating my detailed exposition of why you are insane - that is, until prices have slumped by 50% first. First we must deleverage/deflate the present prices than we can see the economy grow and house price along with it. The problem as I have set out many times before is that it may take up to 25 years to fix the present price bubble and I do not particularly want to condemn the British people to that length of unnecessary private austerity - do you?

    My economic scheme is to deflate rapidly so that the ongoing position can offer us the opportunity of resuming economic activity with a competitive cost base. My argument is that a quick painful slash is far more preferable to prolonged slow and persistent long-lasting cuts after cuts after cuts. (Remember I am talking about private debt and not public debt here. Indeed public debt should rise to cushion the private debt crisis where necessary.)

  • Comment number 79.

    67 avulcan

    No, I am not saying there should not be free speech.
    I just wonder what is the point of the Bank of England and the Treasury...... the first which is supposed to ensure the continued viability of our banks, the second which creams off 40-50% of the bonuses they pay...... enfeebling our already weakened banks and hastening their break up and therby feeding them to competitor sharks for a pittance, further reducing competition,market confidence and consumer choice.
    And reducing Treasury receipts in the process.
    Pointless.
    And I wonder why Robert is not also commenting on the foot-shooting nature of this whole bank-hating negativity we have been consumed wih for the past few years.
    Robert 2007 was 2007, it is time you moved onwards and upwards.
    Give the banks a break, they need it .
    When the British Media stopped believing in the British Economy, the world simply read what they said and priced us down.
    Let's be a bit less Boohoo British and a bit more Chinup Chinese.
    And who got them to run their banks profitably? .....
    Why it was RBS of course!

    We need banks to be gung-ho again, if not our economy will permanently be in the doldrums.

    Remember it wozn't the boom wot dunnit, it woz the crunch.
    And if you wanna stop a crunch, stop crunching!


    Those who got us into the mess are also our way out of the mess.
    When a car is stuck in the mud you do not take its engine out or take its wheels off........ you tow it out and let it get back on the road and let it zoom away happily.

  • Comment number 80.

    To 75. At 22:52pm on 17th Dec 2010, avulcan wrote
    ‘Dempster what do you think?’

    My personal experience of RBS is this:
    All the staff (those you meet in the branch etc.) all tried to do their best for you. What went on behind the scenes, particularly in the underwriting department was open to question, not least mine.

  • Comment number 81.

    The problem is that the focus is all on bankers bonuses. We should be seeking to change all bonuses in any business from an individual (selective) basis to a shared basis.

    Fairly simple to do that. A bonus tax, payable by the recipient at, say 80%, on any bonus that is not shared equally by all on the payroll.

    Companies will either do that with their bonus pot - everyone benefits equally {salaries are the differentiation between employees} - or the practice will die out.

    Widespread bonuses are a relatively new thing. It's time they were old hat if they are paid on a individual basis.

  • Comment number 82.

    Curb bonuses!? As if they could!?

    Here is a must view article which backs up what Dempster and WOTW have been saying for ages: http://michael-hudson.com/2010/12/deficit-hawks-one-two-punch/

  • Comment number 83.

    77. At 22:57pm on 17th Dec 2010, Not Buzz Windrip wrote:
    70 John Dempster.
    Forget your reform and focus on you and your family.

    I know N.B.W.
    But it’s the kid’s future that concerns me.
    That's why I post.

    In the autumn of this year Steve Baker MP and Douglas Carswell MP (two renegade MPs), introduced a bill into parliament to end fractional reserve banking.

    In essence to end debt slavery for the next generation.

    It went unreported, unconsidered, and for the most part, is unknown.
    If people like you and me don’t make a stand, who will?

    So that’s why I post the link:
    http://www.positivemoney.org.uk/

  • Comment number 84.

    This is a rubbish argument. It is based on the principle that the unsupported banks would be lending on the scale currently and charging the interest rates implied.

    They would not, so they would make less money, but the would be lending what they did lend at far higher rates and having to pay savers a higher rate in return. This government (by necessity) and the previous one (by choice) has chosen to rob savers to subsidise borrowers. The supporting of the banks in the manner described is as much to with this perceived necessity as it it with notion of a bank being to big to fail.

    In a free market shortage of capital would drive up interest rates. The government can't afford that because it owns huge amounts as do huge swathes of the voting populace.

    I'd also point out that Ireland is paying punitive interest rates because people believe it won't pay back the money it owes, so how come the UK government accounts for the Irish loan in a manner that suggests repayment is certain (and charges them a rate of interest that will in fact bankrupt them)? Lloyds would be taking a write down on this, so should HMG.

  • Comment number 85.

    Do people realise that fractional reserve banking is now in the past? Banking has now moved on, money is created after the credit has been issued. For those interested check out Steve Keen's lectures. A main page:

    http://www.debunkingeconomics.com/Lectures/Index.htm

    I can't find the lecture that was available on video but this links sums up his research:

    http://www.debtdeflation.com/blogs/2009/01/31/therovingcavaliersofcredit/

    Also, people tired of the banker bashing should try to figure out why those people who took up the 'liar loans' offered. These were at the very least indirectly encouraged courtesy of the fact that they were self certificated. The whole psychology of our western media is based on " . . . why wait, you can have it now, you deserve it . . . ". Imagine paying as much rent as a mortgage costs and you know that you are paying the mortgage for somebody else!?! Caught in that trap somebody throws you a lifeline - get a mortgage now and end it, you never need to fear having to move on because the landlord is selling up. Now who would that be? The people throwing the lifeline are experts in banking \ economics \ mortgage advisors, the people grasping it are just trying to get out of (sometimes very shoddy) rental property. Can you blame them? Of course there are some idiots who maxed credit cards out because they bought a new car because they are bored of their current vehicle and used the equity on their home to finance that transaction. But, who was the sucker that loaned the monies? The specialists in banking and finance! The very people you trust with your money.

    Check out:

    http://www.relfe.com/plus_5_.html

    And note at the bottom:

    Quote

    In 1891 a confidential circular was sent to American bankers and their agents, containing the following statements:

    "We authorise our loan agents in the western States to loan our funds on real estate, to fall due on September 1st 1894, and at no time thereafter.

    On September 1, 1894, we will not renew our loans under any consideration.

    On September 1st we will demand our money - we will foreclose and become mortgagees in possession.

    We can take two-thirds of the farms west of the Mississippi and thousands of them east of the great Mississippi as well, at our own price.

    We may as well own three-fourths of the farms of the west and the money of the country.

    Then the farmers will become tenants, as in England."

    End Quote

    Now figure that lot out!

    Have a nice Christmas

  • Comment number 86.

    78 John, you need to leave Hendon , you make it sound a heck of a depressing place.
    But actually ........

    http://en.wikipedia.org/wiki/Hendon.........

    it looks like quite an interesting place ,with lots of history, and it even gave rise to Peter Mandelson, whom I rather like.
    And interesting places are usually pricey to live in, so is that why you are so glum, John?
    Maybe you need to do a bit of overtime, a bit of moonlighting, or even a bit of DIY on John's gerbil hut.

    But, if you think you're getting my lovely Onward House for half its value you're even more in cloud cuckooland than you think I am.
    It ain't for sale until it's gone up and it's gonna rocket.

    Dempster, you are right, wages have hardly gone up , whereas everything else rocketed.
    And if wages have to go up then they have to go up.
    Half the problem is that we were all suckered into accepting first ,low wage rises, and now , falling living standards in order to keep inflation down.But it hasn't made any difference to inflation because it is coming from rising import prices and a fallen pound.
    At least in the seventies and early eighties we got a pay rise when oil went up .....is Thatcher's legacy not simply that now we are told to get lost and we do not have a way of fighting it other than unions who have not recaptured the public imagination.
    The joke is that many workers are not even allowed to set their rates because of anti-price-fixing legislation, whereas the public organisations and companies raise the cost of everything willynilly.
    How come my wages have to stay put yet my family benefit goes down the tubes?

    Rising wages means rising taxtake means reduced PSBR.

    Uk wages are now low inEuropean terms......we have had a devaluation of 25% but our wages are static and we still have a mega balance of payments deficit.


    And is it time for balance of payments debtor nations to be threatening to selectively supertax imports from surplus nations?
    This would never happen.
    And so Germany will never leave the Eurozone....it knows a sucker when it sees one.

    Britain has always been in favour of free trade .....are we mugs?
    Or do we get more out of it than we put in.....I do not really understand this.

    Nor do I understand why top coppers and MPs are allowed Mercs and Beamers rather than Jags and Landrovers.
    Of course we cannot legislate patriotic purchasing , but could we do it anyway?

  • Comment number 87.

    So 25 years ago when me and the Mem Sahib were looking to set up our business we went to this local curry house. Now we have established our business and gone through god knows how many trials and tribulations we take our staff out to the same local curry house. Brilliant evening and if everything goes "Mammary up" we will still be providing a local service and I do believe so will our local curry house. Believe me when I say it will be business as usual because we and they supply a local need. Now that the local farm grows coriander with climate change he might grow more spices but probably not under this fall of snow. Funny old world?

  • Comment number 88.

    82
    good link, I noticed the reference to the English financial mentality seems quite accurate...

  • Comment number 89.

    Sad thing is some banks have diversified, along with other hedge-funds, into food and other commodities, costing everyone in the UK and the Eurozone dear.

    (Although with the big freeze in the UK, petrol prices and store commodities should crash, because no-one is travelling or buying - it can't be delivered!)

    Once this 'scandal' is curbed, where are the bankers supposed to make an 'honest buck' from, I wonder?

    Don't you feel sorry for them?

    I mean, apart from their income, their subsidised mortgages and loans, their generous pension allowances, 'offshore assets', borrowing easy money from the good old BOE at 0.5% and then buying years worth of oil, gas, coffee, wheat, petrol, diesel, let alone the enormous tracts of land and vineyards held to make a profit, what will they do with their time and profits, if they didn't have them?

    Perhaps its as well to let them be and just change the international tax rules.

    No tax avoidance, no minimum wage and minimum NI contributions, with salaries paid in dividends with minimum Corporation Tax rates.

    Everyone should be PAYEI or POPAYG - Pay As You Earn IT or Pay on Profit As You Go, irrespective of offshoring or country of residence.

    Could be worse, if the Bankers didn't have 'free-rein' granted by 'licenses to operate' by UK HMG in the way that they currently do, then they'd probably all be self-employed drug or gun-runners.

    Still at least the penalties would be clearer!

  • Comment number 90.

    '89. At 07:37am on 18th Dec 2010, sanity4all wrote:

    Could be worse, if the Bankers didn't have 'free-rein' granted by 'licenses to operate' by UK HMG in the way that they currently do, then they'd probably all be self-employed drug or gun-runners.'

    But as it is somebody has to launder the proceeds. Hmmm. Let me think?

  • Comment number 91.

    [[[66. At 22:27pm on 17th Dec 2010, John_from_Hendon wrote: ]]]
    Agree with that, banker's bonuses like footballer’s pay are excessive and such issues need addressing (at least most recipients will pay 50% in tax) but there are much bigger issues for the UK and the World.
    ---------------------------------------------------------------
    [[[63. onward-ho wrote: "We need rising house prices again."]]]
    I can't believe you are serious? This is the very thing which got us into this mess so please let’s not have more asset bubbles being stoked by more easy credit and greedy investors (not just the bankers in my view). Just look at the state of the Irish economy as a pitiful and sad example!
    -----------------------------------------------------------
    We need people to be creating wealth and therefore employment by providing products and services at internationally competitive prices. The alternative is some form of protectionism and that will prove to be the ultimate folly.

    No amount of fiscal prudence when debt will be £1.4 trillion in 2015 nor monetary policy (QEn) will solve the problems they will simply make it a little less painful for a while.

    The real solution to our problems can only be achieved over the longer term and by our own "industriousness". So get those imaginations working then noses to grindstones and start grafting because the government is not going to do it for you no matter how high you make the tax rates!

  • Comment number 92.

    Whist all this madness is being discussed and some of you continue to plot your revolutions I thought I would mention my dear wife. Its sub-zero here with a beautiful layer of snow all around and she is outside in negligée, worn out barbour jacket and wellingtons feeding vast quantities of birds and topping up their water.

  • Comment number 93.

    Oh and she was also wearing a wolly hat. The birds appear very grateful for the food. For my part the kettle is on.

  • Comment number 94.

    What a silly argument but the really depressing thing is the vast majority of the posts here.

    The argument itself is nonsense. Bonuses are not paid as a reflection of past profits. Instead bonuses are paid , UTILISING profits, in order to secure higher FUTURE earnings. If we want RBS and the rest to turn around and pay back the taxpayer's money we should give them the incentives to do so. "Bygones are bygones" is an elementary economics textbook starting point for any kind of analysis when it comes to money. Bonuses are not about "arguments", certainly not about naive notions of "fairness", but about setting the means for future profitability.

    In the real world businesses have an obligation to shareholders to maximise profits. In the financial sector bonuses, experience shows, is one of the key paramaters by which you can incentivise staff to increase your profitability.

    Why is it that high bonuses are primarily to be found in finance and not, e.g. in industry? Because the incremental benefit of staff remuneration and personal performance incentives is that much higher in sectors where the major driver for profit is the quality and productivity of the people it employees and the relative scarcity of hiring this level of expertise from the market place.

    For example, in the local corner shop you can have an assistant on zero bonus - and you probably make a better profit than if you were to add, say a 50% bonus on top of salary for any performance target you may set - because any large profits that may come in the year ahead would probably have little to do with the performance bonus you have promised.

    If we take the other extreme, lets look at, e.g. mergers and acquisitions investment banking. Here, unless you offer bonuses in the range of 200%+ of what are already very high salaries (a thirty year old thus getting a package of 140k per year, a 35 year old perhaps 500k per year) you will lose your people to the competition (which is global of course) and no-one with the same abilities would join for less.

    At the end of the day, and this is the only relevant point, there is scarcity in the supply of labour when it comes to the very high quality potential employees in certain sectors in finance and in finance that matters in a way it does not almost everywhere else. Good investment bankers are scarce and valuable in a way that rocket scientists and Nobel-prize cancer reasearch scientists are not.

    So if the rest of the UK, which is probably represented by the majority of the posts here, somehow feels that finance is getting relatively much better paid, that is unfortunate but the solution to ban bonuses or the quest for arguments to "curb bonuses" is stated as a given, it all starts resembling petty jealousy. The right approach is to ask the very simple questions:

    1) what level of bonuses do we need in order to incentivise the finance sector?
    2) who is the right person to answer the question above?

    Regarding the second point there is a good argument to be had that on some very narrowly defined areas of finance there is the possibility that one-year performance related pay may offer disencentives to long term profitability. This may be so and it is being sorted both within firms and by regulators but it applies to a very small percentage of the sector. For the rest, the boards of each firm should be left to make their own decisions.

    We should stop doing in is asking irrelevant questions like the one that underlies the article: "How to curb bonuses" , as if this would be a commendable objective in itself in any sane environment. Jealousy should not have any place in policy formulation.

  • Comment number 95.

    The bonuses may look lower than everyone is expecting then the banks can say they're taking notice of people's concerns.

    Of course they won't point out they are doubling and trebling their 'stars' basic salaries so they're handing out just as much anyway.

    Bottom line is; the finance sector have this country by the b@lls. They know it, the government know it.

    The sector is also full of the most venal, nasty and selfish people on the plant. Even if 'Call me Dave' and Gideon wanted to stop the huge remuneration packages (which they don't) they know the financiers would just turn round and screw the UK economy over purely for vengeance.

    Corporatism now runs the country...

  • Comment number 96.

    Is the point here that there may be legislation to deal with excessive bonus payments? There is already, the behaviour has been treasonous. How else can you describe this wholesale theft from the treasury and the population? Unfortunately there have been no heads on spikes on London Bridge? Why? Lack of political will to change... c'mon Vince, where has the rhetoric gone?

    I have worked in investment banking and it is a confidence game that needs to be dismantled, the failure of equity launches over the last year has been indicative of how it works, the only losers the institutional investors (your pension) as the bankers (advisors?!?!) paid themselves ever increasing fees. The sector is sick. It seems to be a mentality of grab as much as you can as quick as you can before it all goes t1ts up again. Working as a compliance officer I cannot tell you how many times I have seen money take precedence over rules, regulation or just generally decent behaviour. A previous commentator was correct, it is completely full of reagonomic acolytes who have no concern about anyone else but themselves (the anglo-saxon model!?!?). They should not be allowed to pay themselves any more in salary or take any bonuses home... a number of them should be locked up or given a few years community service working with the ever increasing impoverished numbers of our society. It is a national (international) disgrace that the wealth divide is allowed to increase and this balls up is a contributing factor as this useless money men steal more and more.

    Furious about it and emigrating.

  • Comment number 97.

    @ 13. At 18:04pm on 17th Dec 2010, Paul wrote:

    > Frankly, as owners of both Lloyds and RBS the government
    > has the right to appoint the majority of the board, Chairman and
    > CEO and dictate recruitment & remuneration policy, however the
    > political implications of doing so are unthinkable.

    No. The political implications of not doing so are unthinkable, because we own the government and the govermnet owns the bank. These are our decisions, not bankers, and we will see them clipped right back.

  • Comment number 98.

    Dear Mr. Peston,
    One topic area that has not been discussed about banking bonuses is the formula for calculating the bonuses.

    Would you like to share the formula for the Investment Banking Bonus with the posters Robert?

    It is a % of NET TURNOVER!

    Now banks have been allowed through the direct and indirect subsidies to remain solvent and post phantom profits.

    These loans effectively allow ALL banks to borrow £10 and sell it back to the government (ultimately the taxpayer) at £70.

    The taxpayer gets a double whammy by banks lending to consumers at higher interest rates and now they want to remove free banking.

    Perhaps Robert can correct me but most investment banks/arms award up to 40% of net turnover and NOT PROFIT.

    Can anybody reveal any other industry that is rewarded in this way.

    If the government is cutting vital services and denying business loans, why are bankers who appear not to fully understand their own business being rewarded.

    I am not talking about board members as their salary is disclosed in annual reports. I am talking about the 3000 anonymous bankers whose £1,000,000 plus bonuses underwritten by the taxpayer are siphoned off rather than shoring up their woeful capital reserves.

  • Comment number 99.

    79. At 23:11pm on 17th Dec 2010, onward-ho wrote:

    > enfeebling our already weakened banks and hastening their break
    > up and therby feeding them to competitor sharks for a pittance

    That is a problem for private shareholders, who failed us all. It is not a problem for me. When banks are feeble, broken up and weak, then we would not need any crack down, and they would never again be a threat to the British public.

  • Comment number 100.

    94 AdamSmith42

    Bonuses are wide spread throughout the banking sector down to the high street retail end - they appear to have been introduced to replace formal salary deals as a way of giving advantage to the employer. For example bonuses presumably are not recognised as part of redundancy calculation. My guess is there are tax and NI breaks etc. If a bonuses is routinely applied for average work it is not a bonus is it, it is designed and sold as part of a salary deal. It is all about expectations.

    It is up to a private business what they do. A private business does not demand public subsidy and expect no involvement following public money particularly when it clearly is not functioning effectively. I do not see banking as such as any dIfferent to any other activity and do not buy this line that vast sums have to be paid.

    'Good investment bankers are scarce and valuable in a way that rocket scientists and Nobel-prize cancer reasearch scientists are not.'

    This is not a basis for an industry then is it. It is a recipe for disaster. You cannot base a big multinational industry on such scarcity. You can however base a substantial subsidy on it.

 

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