Should bankers' bonuses be capped or is this a way of politicians to pass blame?

Laura McCarthy - 05/03/2013

As part of the new regulations being put forth in Basel III, EU politicians in Brussels decided that a cap of Bankers bonuses was a step in the right direction to gain economic stability and show the outraged public that they are clamping down on the banking industry and the foul practices which lead to the financial meltdown.

The proposed agreement which also has been widely covered in the media would mean that bankers face an automatic cap on bonus to set them on par with their salaries, with the elite few being granted double their basis on majority vote by shareholders. Maybe this pay structure could be adopted by Central Bankers, Governments, and Regulators, after all aren’t they to blame as well?

There are a few problems I see with capping of banker’s bonuses. Firstly is that of competitiveness. European banks which are strongly linked to their global counterparts will be compromised which could lead to global banks relocating their headquarters out of Europe as well as a move of highly qualified banking staff out of Europe. Secondly, Should pay not be more related to contribution?

Perhaps introducing more bonus procedures and guidelines could correct the bonus payouts of the past. Thirdly the impact this will have on the Banks balance sheet. As Simon Lewis from the Association of Financial Markets in Europe pointed out “The outcome will be an inflexible cost base, contributing to greater risks in banks.” This will not only affect their competitiveness but also that of the real economy.

Britain is a lone voice in its fight not to pass this proposal with the 144,000 city of London bankers to be worst hit. Ireland minister for finance Michael Noonan will now present this to the EU members which needs major vote of its 27 nations.

Personally I agree with Boris Johnson’s statement when he said that this is the most “Deluded measure to come from Europe” placing the blame on bankers and taking the heat of their own wrong doings. I believe the meltdown came about by a multitude of collaborating factors from all corners of the social economic and political spheres.

How this will affect not only the structure of the banking industry but the competitive nature of the people in it is still to unfold.

Are bankers' bonuses too big? Should they be capped? Are they really the people we should be blame? All comments are welcome so please share them via our comment box below.

Consultant, London
+44 207 092 0097
lmccarthy@morganmckinley.co.uk