It is a hugely emotive subject, after vast sums of tax payer’s money being used to prop up major banks such as RBS and Lloyds TSB, people are understandably asking why are these banks paying out such large bonuses?
It is particularly galling to those who have lost their jobs and a struggling to repay mortgages under the threat of repossession from these banks. Overall it is a real mess, morally such huge bonuses should not be paid whilst so much tax payer money is being used to support these banks. But maybe we have no choice but to pay these bonuses?
The problem is that the banking system is global, if UK banks do not pay the bonus to staff that other non UK banks offer then they will lose many of their staff to the competitors, ultimately it could see a big fall in the banking sector within UK and ultimately a fall in tax revenues.
So what is the solution? Maybe we are too focused on the symptoms and not the cause, the bonus payments are just a symptom of an underlying banking system that needs to be “cured”. As we stated in an earlier blog about bank bonuses, the focus must be more on making the cost of bank failure high to the share holders.
If the cost of failure is high enough then shareholders would prevent banks from taking excessive risks. If banks perform in a way that is risk free to a country’s economy then they should be free to pay whatever bonuses their shareholders agree to.
