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FSA “passing the buck” on bank bonuses

For those on holiday or not in the UK, there was a fascinating interview on yesterday's Andrew Marr Show – BBC's Sunday morning political and business review – with Hector Sants, the head of the FSA. 

Here's the piece I particularly liked:

"If you think about the bonus question, really it's helpful to
disentangle it into three different questions. It's not as simple
possibly as the media sometimes portray.

"I mean, first of all,
there is the question of are the way that those bonuses are calculated
incentivising people to take unreasonable risk and put their
institutions at risk of failure?

"Secondly, there's a question of in the
aggregate are the banks distributing too much money for their own
health? That's the total amount of money they pay to their employees.

"Then
there's the third question, which I think occupies a lot of media
debate: somehow or other are those individual payments unreasonable,
particularly at a time when obviously the state sector, the taxpayer is
extending quite a bit of support to banks?

"The first two questions are
the questions for regulators to address and our code next week will
address those questions and make absolutely clear that you cannot
calculate bonuses in a way which encourages unreasonable risk taking
and puts the institutions at risk, which was the case in the past …

"The question of how the total pot of profits should be split between
the shareholder and the employees is one primarily for the shareholder
to answer.

"We can take a view on how much should be distributed
in relation to maintaining the banks' stability, but the question of
how that amount is then split up between employees and shareholders is
one primarily for the shareholders.

"And of course in many cases
now, the government is the shareholder. So I think that is a question
for government and politicians. Asking the regulator to solve that, I
would say is arguably passing the buck
."

Hector had a lot more to say.  To read the full transcript of the interview, click here.

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About Chris M Skinner

Chris M Skinner
Chris Skinner is best known as an independent commentator on the financial markets through his blog, the Finanser.com, as author of the bestselling book Digital Bank, and Chair of the European networking forum the Financial Services Club. He has been voted one of the most influential people in banking by The Financial Brand (as well as one of the best blogs), a FinTech Titan (Next Bank), one of the Fintech Leaders you need to follow (City AM, Deluxe and Jax Finance), as well as one of the Top 40 most influential people in financial technology by the Wall Street Journal’s Financial News. To learn more click here...

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