MUCH of the rhetoric surrounding bankers’ bonuses is just that: rhetoric. David Cameron yesterday said that he didn’t want to micromanage British banks, a sentiment that should be welcomed, but the truth is that politicians in Brussels – not Britain – really call the shots when it comes to variable remuneration.
For the Committee of European Banking Supervisors has imposed on London the most draconian bonus regime in the world. City watchdog FSA is charged with implementing the code, although in truth it is just doing Brussels’ bidding.
Essentially, the rules – which came into force at the start of the year – prevent banks and other “systemically important” firms from paying more than 30 per cent of a bonus in upfront cash, shrinking to 20 per cent for particularly high payouts. Guaranteed bonuses – excluding golden hellos – have also been banned.
That’s why it should come as no surprise that Stephen Hester, the boss of RBS, or Bob Diamond, Barclays’ chief executive, are unlikely to take significant cash bonuses this year.
Reporting in the mainstream media rarely mentions the CEBS rules, nor the damage they will do to London’s standing as a global financial centre (as Europe’s pre-eminent banking hub, London stands to lose far more than Paris, Berlin or Madrid).
This silence suits Britain’s political class perfectly. On the Andrew Marr show yesterday, the Prime Minister was only keen to take credit for a “very tough set of rules on bonuses”.
Of course, he failed to mention that these rules – like so many of our laws – were written by Europe, and have absolutely nothing to do with British legislators.
When bonuses are paid in shares or deferred – as they have to be under the new regime – the coalition will surely take credit; it will claim that it managed to get the banks to show restraint in the face of terrible largesse.
The government will also take credit for the fact that the overall bonus pool for 2010 will be lower than a year earlier, although this has more to do with lower investment banking profits that the government’s influence.
Sadly, the real issue – that this bonus regime will lead to a flight of top banking talent to competing financial centres such as New York, Hong Kong and Singapore – will be brushed under the carpet.