B.O.E. gets tougher on bankers

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crankedup

Original Poster:

25,764 posts

242 months

Wednesday 30th July 2014
quotequote all
Announced this morning on the BeeB. The bankers bonus payments will be deferred for seven years, up from the present 3/4 years. Seven years is thought to be the time lapse required for any bankers misbehaviour that contributed to a bonus payment being uncovered. In the event that any errant banker has spent the money action will follow to recover said payment, I presume a Regularity Body would use presume asset seizures through Law Courts.
Obviously its another minor turn of the screw in an attempt to placate the great British public.

Moonhawk

10,730 posts

218 months

Wednesday 30th July 2014
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crankedup said:
Obviously its another minor turn of the screw in an attempt to placate the great British public.
It sounds like a reasonable position to me.

If bonuses are based on performance..........how can you award said bonus unless both the positive and negative aspects of that performance can be accurately assessed.

The longer it takes to make that assessment - the longer the period between bonus payments. Makes sense surely?

Randy Winkman

16,021 posts

188 months

Wednesday 30th July 2014
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OMG!!! They will all go somewhere else!!! eek

rolleyes

kiethton

13,883 posts

179 months

Wednesday 30th July 2014
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7 years is totally OTT, a lot changes in that time, much of it not directly attributable to the poor sod on the ground at a specific bank who may end up with well over 5x annual base salary being demanded back.

If this ever happened (not that i hope it to) I would ensure I'm in no position to repay - transfer all assets into spouse name etc. and become a (spouse/trust fund sponsored) man of straw, get benefits too then!

crankedup

Original Poster:

25,764 posts

242 months

Wednesday 30th July 2014
quotequote all
Moonhawk said:
crankedup said:
Obviously its another minor turn of the screw in an attempt to placate the great British public.
It sounds like a reasonable position to me.

If bonuses are based on performance..........how can you award said bonus unless both the positive and negative aspects of that performance can be accurately assessed.

The longer it takes to make that assessment - the longer the period between bonus payments. Makes sense surely?
Agreed, my POV exactly. Just an attempt to raise the issue from a neutral stance, old hands in here will know of my POV regards these issues.

Zod

35,295 posts

257 months

Wednesday 30th July 2014
quotequote all
Seven years is a long time, but the principle is something that Siegmund Warburg alluded to years ago when he suggested that huge bonuses could not be justified when there were no balancing penalties for the years when the banker produced losses or when profits in repesct of which a bonus had been awarded were reversed.

speedyman

1,523 posts

233 months

Wednesday 30th July 2014
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Always sounds to me that the targets are set to low when these bonuses are "earned" annually at such high levels by some in the banking community.

toppstuff

13,698 posts

246 months

Wednesday 30th July 2014
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I think legislation like this will probably be passed. It is populist. People outside the sector will instinctively feel it is right.

There will be quite considerable unintended consequences however. This is quite simply because no-one has made the effort to properly identify just what a "banker" actually is.

Will this affect employees of a UK registered banking organisation that holds a banking license in the UK?

What about people working in the UK office of other financial firms that are not banks? Like hedge funds, or private equity funds for example?

What about fund managers? Are they the same as bankers?

What about fund managers or bankers in other places like New York, Dubai or Hong Kong, who work for a foreign subsidiary of a UK bank?

What if the "banker" is doing work that is not related to the balance sheet of his employer and therefore cannot actually "cause harm"?

What if I am a banker working for a Uk bank - can I simply stop being a banker and shift my contract so that I am technically employed by a Singapore based hedge fund SPV for example?

It is a complex industry, global economics. Bloody complex. Populist, simple solutions that appease the electorate are just as likely to make things worse as they are going to make things better. Still, the public get to give the bogeyman a good kicking, so thats all good then.

smile

anonymous-user

53 months

Wednesday 30th July 2014
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Moonhawk said:
It sounds like a reasonable position to me.
Sounds like just another political move with unintended consequences to me. Can you name the two banks with by far the toughest bonus retention clauses prior to the financial crisis? (It was Lehman and Bear Stearns with a 5 year retention period)

Moonhawk

10,730 posts

218 months

Wednesday 30th July 2014
quotequote all
fblm said:
Sounds like just another political move with unintended consequences to me. Can you name the two banks with by far the toughest bonus retention clauses prior to the financial crisis? (It was Lehman and Bear Stearns with a 5 year retention period)
Possibly demonstrating that 5 years wasn't long enough?

Whether such a proposal is feasible in reality will come down to the specifics - but in principle, the idea does have some merit. There have to be downsides to bankers taking excessive risks - or implementing strategies that have short term gain - but long term harm.

They can't take their bonuses and be long gone before the st hits the fan.


Edited by Moonhawk on Wednesday 30th July 14:59

s1962a

5,289 posts

161 months

Wednesday 30th July 2014
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How many 'bankers' will actually be affected by these changes? Me thinks a handful

anonymous-user

53 months

Wednesday 30th July 2014
quotequote all
Moonhawk said:
Possibly demonstrating that 5 years wasn't long enough?
No, in addition to the fact that most banks with shorter or no lockup periods did not take excessive risk or fail, it simply demonstrates there is no connection between the two. You'd think there would be but the evidence is otherwise.

Moonhawk said:
Whether such a proposal is feasible in reality will come down to the specifics - but in principle, the idea does have some merit.
Evidence of the financial crisis suggests not.

Moonhawk said:
There have to be downsides to bankers taking excessive risks - or implementing strategies that have short term gain - but long term harm.
Agreed, but blindly implimenting policies to satiate the public that evidently didn't work previously is playing dumb politics not fixing anything. When everyone was bleating about bonuses the politicians demanded smaller bonuses, personally I got a slightly smaller bonus, but my salary doubled, some quadrupled; unintended consequences. If I were working for a bank the longer the lockup the more I'd want, ie I'd want a higher bonus to cover the personal risk of holding the banks stock and for being effectively unable to ever leave; higher bonuses; unintended consequences.

Mark Benson

7,498 posts

268 months

Wednesday 30th July 2014
quotequote all
Moonhawk said:
fblm said:
Sounds like just another political move with unintended consequences to me. Can you name the two banks with by far the toughest bonus retention clauses prior to the financial crisis? (It was Lehman and Bear Stearns with a 5 year retention period)
Possibly demonstrating that 5 years wasn't long enough?

Whether such a proposal is feasible in reality will come down to the specifics - but in principle, the idea does have some merit. There have to be downsides to bankers taking excessive risks - or implementing strategies that have short term gain - but long term harm.
Rather than implementing populist, divisory laws, the politicians could do something useful like implementing a version of Glass-Steagall.

This move will punish the 'Evil Banker (tm)' and placate the unthinking masses while doing little to prevent a recurrence of the crisis.

Moonhawk

10,730 posts

218 months

Wednesday 30th July 2014
quotequote all
fblm said:
Agreed, but blindly implimenting policies to satiate the public that evidently didn't work previously is playing dumb politics not fixing anything. When everyone was bleating about bonuses the politicians demanded smaller bonuses, personally I got a slightly smaller bonus, but my salary doubled, some quadrupled; unintended consequences. If I were working for a bank the longer the lockup the more I'd want, ie I'd want a higher bonus to cover the personal risk of holding the banks stock and for being effectively unable to ever leave; higher bonuses; unintended consequences.
I guess suggestions on a postcard then......

Zod

35,295 posts

257 months

Wednesday 30th July 2014
quotequote all
Mark Benson said:
Moonhawk said:
fblm said:
Sounds like just another political move with unintended consequences to me. Can you name the two banks with by far the toughest bonus retention clauses prior to the financial crisis? (It was Lehman and Bear Stearns with a 5 year retention period)
Possibly demonstrating that 5 years wasn't long enough?

Whether such a proposal is feasible in reality will come down to the specifics - but in principle, the idea does have some merit. There have to be downsides to bankers taking excessive risks - or implementing strategies that have short term gain - but long term harm.
Rather than implementing populist, divisory laws, the politicians could do something useful like implementing a version of Glass-Steagall.

This move will punish the 'Evil Banker (tm)' and placate the unthinking masses while doing little to prevent a recurrence of the crisis.
Quite. People seem to forget that Lehman was a pure investment bank, while RBS was a large universal bank, with a mediocre investment bank that was brought down by a terrible acquisition and poor lending. At the smaller end, neither Northern Rock, nor Bradfrod & Bingley had anything to do with investment banking. All this talk of keeping the "safe" retail banks insulated from the risky "casino" investemnt banks is total bks.

Du1point8

21,604 posts

191 months

Wednesday 30th July 2014
quotequote all
Zod said:
Mark Benson said:
Moonhawk said:
fblm said:
Sounds like just another political move with unintended consequences to me. Can you name the two banks with by far the toughest bonus retention clauses prior to the financial crisis? (It was Lehman and Bear Stearns with a 5 year retention period)
Possibly demonstrating that 5 years wasn't long enough?

Whether such a proposal is feasible in reality will come down to the specifics - but in principle, the idea does have some merit. There have to be downsides to bankers taking excessive risks - or implementing strategies that have short term gain - but long term harm.
Rather than implementing populist, divisory laws, the politicians could do something useful like implementing a version of Glass-Steagall.

This move will punish the 'Evil Banker (tm)' and placate the unthinking masses while doing little to prevent a recurrence of the crisis.
Quite. People seem to forget that Lehman was a pure investment bank, while RBS was a large universal bank, with a mediocre investment bank that was brought down by a terrible acquisition and poor lending. At the smaller end, neither Northern Rock, nor Bradfrod & Bingley had anything to do with investment banking. All this talk of keeping the "safe" retail banks insulated from the risky "casino" investemnt banks is total bks.
Abso-fking-lutely.... I give you the Co-Op bank that by the sounds of it, even with its ethical lending status is one of the most corrupt, ill thought out banks around.

It was totally backed by Labour, in return it gave them cheap loans due to the meth head running the show, decided to sprint before it was out of diapers and screwed the pooch on that one, gave out huge sums of money that it had no way of sustaining.

Was that an investment bank?

No that was the first of the Labour safe banks.

Zod

35,295 posts

257 months

Wednesday 30th July 2014
quotequote all
Actually, "mediocre" is too flattering a description of RBS's investment banking operation. It was mostly st. Most of the good Hoare Govett people were long gone by the crash.

crankedup

Original Poster:

25,764 posts

242 months

Wednesday 30th July 2014
quotequote all
My understanding is that this proposal, likely to be introduced January 2015, is the B.O.E. demand?

crankedup

Original Poster:

25,764 posts

242 months

Wednesday 30th July 2014
quotequote all
s1962a said:
How many 'bankers' will actually be affected by these changes? Me thinks a handful
That is the hope I guess, the penalty will outweigh the risk of any skulduggery. Its the likelihood of being caught within the seven year period may just dissuade naughty people.

Digga

40,207 posts

282 months

Wednesday 30th July 2014
quotequote all
Zod said:
Quite. People seem to forget that Lehman was a pure investment bank, while RBS was a large universal bank, with a mediocre investment bank that was brought down by a terrible acquisition and poor lending. At the smaller end, neither Northern Rock, nor Bradfrod & Bingley had anything to do with investment banking. All this talk of keeping the "safe" retail banks insulated from the risky "casino" investemnt banks is total bks.
It certainly misses the point that certain of the 'casino' banks, such as J P Morgan, had taken a far more conservative view of CDOs.