Bank of England's Sir Jon Cunliffe tells banks to cut back pay permanently

Tim Wallace
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Sir Jon Cunliffe believes bankers are still paid too much (Source: Getty)
Banks will be less profitable for the foreseeable future, but have so far failed to cut back pay and bonuses to match, Bank of England deputy governor Sir Jon Cunliffe said yesterday.

As governments stop propping up banks, they must pay more for funding, pushing up costs. And at the same time they are being forced to be less highly leveraged, reducing revenues. As a result, return on equity will be lower permanently, Cunliffe said.

“Put simply, shareholders [in global banks] have gone from getting 60 cents for every dollar in pay for staff to getting 25 cents per dollar. Across the big UK banks in 2013, the fraction had fallen to just two per cent – ie to two pence per pound paid to staff,” he told an audience at Chatham House.

“It is noticeable that, since the crisis, for the industry as a whole, employees have received a larger share of a smaller pie relative to shareholders.”

The Bank of England rejects the EU’s new bonus cap as a crude tool which will push up fixed pay and make banks less flexible, rather than actually cutting bankers’ pay. Instead it wants to see bankers paid a larger proportion of their income in shares, and for staff to have to wait for many years before collecting bonuses. The regulators hope this will align bankers’ incentives with those of their employer over the long-term, improving behaviour and cutting risks.

But despite these efforts, Cunliffe maintains bankers receive a bigger share of the firm’s income than they should. Mark Carney’s deputy also told international regulators to co-ordinate their efforts more if they want finance to promote economic growth.

“If we cannot enforce consistent application of international standards, the likely to be the further rolling back of financial globalisation to the detriment of the global economy as national regulators feel compelled take local action to protect their own jurisdictions,” Cunliffe warned.

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