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Regulators behind the curve on bankers’ salary clawback

Mark CarneyIt beggars belief that the governor of the Bank of England Mark Carney has found it necessary to call for bankers to be forced to repay part of their salaries if they are found guilty of wrongdoing.

International regulators were warned when they introduced new rules limiting bonuses that the banks would get round the restriction by raising basic salaries to compensate those who may be penalised.

Anecdotal evidence is that this is exactly what the banks will do when the new regime comes into effect next year.

The new rules will prevent bankers’ being paid bonuses that are more than their fixed pay, or twice their salary if approved by shareholders.

No one took any notice of those who warned that the banks would find an easy way to pay their senior people. The banks have continued to insist that they need to pay their top staff big money in order to prevent them moving elsewhere. Given that the new rules do not apply in all situations and jurisdictions they will say this remains a real risk.

But the public find this hard to swallow and it has fallen to Carney to urge those same financial watchdogs to revise the rules accordingly.

Speaking in Singapore, he said this would “help rebuild trust”.  He knows this is a long game and it has not gone unnoticed that his speech came just days after five banks were fined heavily for rigging foreign exchange trading, the latest in a series of penalties since the financial crash in 2008. It is thought Stephen Hester, former chief executive of RBS, will be among those who will come come under scrutiny, although there was no suggestion of wrong-doing on his part.

He is said to be taken with an idea proposed by New York Federal Reserve Bank president William Dudley to introduce “performance bonds” for top level bankers. This would be in the form of debt rather than shares so that if they were forfeited it would not impact on other shareholders.

At least Carney is moving in the direction of the public who believe misbehaving bankers should be made personally responsible for their deeds rather than the institutions they work for, and certainly not the taxpayer.

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