Should the bankers' bonus cap be abolished?
The new Chancellor of the Exchequer is reportedly considering scrapping the cap on banker bonuses, which has been in place since 2014.
In a move designed to increase London’s attractiveness for overseas banks, Kwasi Kwarteng is understood to want to stamp his authority early into his tenure.
Roger McCormick, Honorary Senior Visiting Fellow at Bayes Business School (formerly Cass) said he supported lifting the cap, as long as provisions remained in place for curbing reckless behaviour.”
“I believe any government interference into who gets paid what needs to discharge a sizeable burden,” Mr McCormick said.
“In the case of these bonuses that burden was discharged when a cap was imposed because of the perceived link to reckless risk taking in the lead-up to the Global Financial Crisis. I don't believe it was ever meant as a permanent measure.
“We are now some way past the events of 2008 and the need for the cap is no longer obvious, so it should be removed.
“There are other ways of curbing recklessness and there have been regulatory changes directed at this, such as the Senior Managers & Certification Regime.
“There is also the issue of competitiveness. London is already a leading financial centre and to remain attractive to the best we shouldn’t be imposing artificial and unnecessary limits on potential financial rewards.
“If there are signs that recklessness is returning then we can of course consider reintroducing some measures of deterrent.”
The Centre for Banking Research at Bayes leads the Conduct Costs project, which monitors episodes of misconduct in 20 of the world’s largest banks.
Dr Angela Gallo, Senior Lecturer in Finance at Bayes, agreed with Professor McCormick, citing that caps on banker bonuses had done little to impact banker behaviour.
“It is a matter of fact that we have still observed severe cases of bank misconduct since 2014, as reported by the Conduct Costs project,” Dr Gallo said.
“This rule has been in place throughout this time, so it was clearly not addressing a problem as expected.
“Competitiveness is also a compelling argument, even with respect to non-financial industries that are increasingly competing with banks – such as the fintech space.”
All quotes can be attributed to Roger McCormick, Honorary Senior Visiting Fellow and Dr Angela Gallo, Senior Lecturer in Finance at Bayes Business School.
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