George Osborne, the shadow chancellor, has warned banks not to announce mega-bonuses in their annual reporting round later this month if they want to avoid a political and public backlash similar to America.
In an interview at the World Economic Forum in Davos, Mr Osborne said that although some "intelligent bankers" understood the need for restraint he was still concerned that the demand for fundamental reform was not getting through.
He also said that the issue of the Greek deficit, with markets losing confidence in the ability of the Greek government to handle its public debt, was a stark warning to the UK. (AtW's comment: translation - don't laugh at Greece/euro as UK/pound is in much worse position)
He said the Government was "still asleep" on the issue of the UK deficit which is the largest in the developed world. Cuts in public spending would have to start this year, he argued.
"They [the banks] have to understand that they operate in the context of the fallout from the banking crisis."
"They have to understand that is the context in which this reporting season and this bonus round takes place.
"It is totally unacceptable to pay large bonuses, large cash bonuses in particular, at a time when the taxpayer is still reeling from the cost of bailing out the banking system, and when businesses across the country cannot get access to credit on reasonable terms."
The Sunday Telegraph revealed last weekend that banks are likely to report up to £25bn in profits when they announce their annual figures in the next month.
Barclays, which is expected by analysts to post profits of up to £11bn, has already signalled that it will cut its bonus pot considerably.
"These levels of pay and bonuses is money taken out of the company that would otherwise be distributed in dividends or I think, more importantly at the moment, actually used to build up balance sheets and get credit flowing," Mr Osborne said.
Turning to the deficit, Mr Osborne said that many other countries, including Spain, Portugal and the Czech Republic, were now rushing out statements on cutting the public deficit to reassure the markets.
"The British budget deficit is the largest in the developed world and that is a startling fact. That is damaging confidence in the UK.
"Only this week we had PIMCO, the largest bond investors in the world, using very explosive language about the UK. You have international investors putting out notes that Britain is a "must avoid".
"You have credit rating agencies putting the UK's AAA credit rating on watch and threatening a downgrade.
"This is a really toxic combination. Here we are in Davos with another European government in enormous trouble, the Greek government, desperately trying to reassure the world that it has a credible deficit plan.
"The [British] Government's deficit reduction plan, the halving in four years, has not commanded international confidence. The plan is not credible, the rest of the world thinks it is not enough, and therefore our argument in order to restore confidence in the UK and crucially keep interest rates as low as possible for as long as possible –which would be the greatest stimulus to the recovery – you have to move sooner on dealing with the deficit in 2010, and you have to do more than the Government is proposing and you have to eliminate a large part of the structural deficit in the lifetime of a Parliament. Greece is a real warning signal to Britain.”
Mr Osborne said he largely agreed with President Barack Obama’s plan to ban proprietary trading by global banks and also repeated calls for an international levy.
But he said it would be dangerous to act unilaterally and pointed out that he believed that the British Government had “no inkling” of Obama’s announcement.
“I agree that large retail banks should not engage in large-scale proprietary trading and the very risky end of investment banking,” he said.
“This is not a classic Glass-Steagall [the US act that formerly split retail and investment banking] because Glass-Steagall stopped all investment banking by retail banks. These days a retail bank offers all sorts of investment banking services to customers.
“What you want to stop is the tax payer guarantee that exists – and was exposed by the financial crash – for the gambling end of things. (AtW's comment: that should cover big part of the New Las Vegas aka the City)
“I agree the technical challenge of where you draw the line is a difficult one but I don’t think an insurmountable one. When you look back over the last 18 months it would be extraordinary if you did not want to make some pretty significant changes to the model of finance which had led us into these troubles.”
He confirmed that the Conservatives were looking at a Swedish model for imposing an insurance levy. “It becomes an insurance fee on wholesale funding.
“There’s already a deposit protection scheme to insure those deposits; what they don’t pay is an insurance fee for their wholesale funding which, if it fails, most obviously as it did in Northern Rock and RBS, means the taxpayer has to come in.”
Source.
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Taken at face value Cons don't look like they are in the pocket of the banks, not just yet.
In an interview at the World Economic Forum in Davos, Mr Osborne said that although some "intelligent bankers" understood the need for restraint he was still concerned that the demand for fundamental reform was not getting through.
He also said that the issue of the Greek deficit, with markets losing confidence in the ability of the Greek government to handle its public debt, was a stark warning to the UK. (AtW's comment: translation - don't laugh at Greece/euro as UK/pound is in much worse position)
He said the Government was "still asleep" on the issue of the UK deficit which is the largest in the developed world. Cuts in public spending would have to start this year, he argued.
"They [the banks] have to understand that they operate in the context of the fallout from the banking crisis."
"They have to understand that is the context in which this reporting season and this bonus round takes place.
"It is totally unacceptable to pay large bonuses, large cash bonuses in particular, at a time when the taxpayer is still reeling from the cost of bailing out the banking system, and when businesses across the country cannot get access to credit on reasonable terms."
The Sunday Telegraph revealed last weekend that banks are likely to report up to £25bn in profits when they announce their annual figures in the next month.
Barclays, which is expected by analysts to post profits of up to £11bn, has already signalled that it will cut its bonus pot considerably.
"These levels of pay and bonuses is money taken out of the company that would otherwise be distributed in dividends or I think, more importantly at the moment, actually used to build up balance sheets and get credit flowing," Mr Osborne said.
Turning to the deficit, Mr Osborne said that many other countries, including Spain, Portugal and the Czech Republic, were now rushing out statements on cutting the public deficit to reassure the markets.
"The British budget deficit is the largest in the developed world and that is a startling fact. That is damaging confidence in the UK.
"Only this week we had PIMCO, the largest bond investors in the world, using very explosive language about the UK. You have international investors putting out notes that Britain is a "must avoid".
"You have credit rating agencies putting the UK's AAA credit rating on watch and threatening a downgrade.
"This is a really toxic combination. Here we are in Davos with another European government in enormous trouble, the Greek government, desperately trying to reassure the world that it has a credible deficit plan.
"The [British] Government's deficit reduction plan, the halving in four years, has not commanded international confidence. The plan is not credible, the rest of the world thinks it is not enough, and therefore our argument in order to restore confidence in the UK and crucially keep interest rates as low as possible for as long as possible –which would be the greatest stimulus to the recovery – you have to move sooner on dealing with the deficit in 2010, and you have to do more than the Government is proposing and you have to eliminate a large part of the structural deficit in the lifetime of a Parliament. Greece is a real warning signal to Britain.”
Mr Osborne said he largely agreed with President Barack Obama’s plan to ban proprietary trading by global banks and also repeated calls for an international levy.
But he said it would be dangerous to act unilaterally and pointed out that he believed that the British Government had “no inkling” of Obama’s announcement.
“I agree that large retail banks should not engage in large-scale proprietary trading and the very risky end of investment banking,” he said.
“This is not a classic Glass-Steagall [the US act that formerly split retail and investment banking] because Glass-Steagall stopped all investment banking by retail banks. These days a retail bank offers all sorts of investment banking services to customers.
“What you want to stop is the tax payer guarantee that exists – and was exposed by the financial crash – for the gambling end of things. (AtW's comment: that should cover big part of the New Las Vegas aka the City)
“I agree the technical challenge of where you draw the line is a difficult one but I don’t think an insurmountable one. When you look back over the last 18 months it would be extraordinary if you did not want to make some pretty significant changes to the model of finance which had led us into these troubles.”
He confirmed that the Conservatives were looking at a Swedish model for imposing an insurance levy. “It becomes an insurance fee on wholesale funding.
“There’s already a deposit protection scheme to insure those deposits; what they don’t pay is an insurance fee for their wholesale funding which, if it fails, most obviously as it did in Northern Rock and RBS, means the taxpayer has to come in.”
Source.
-------
Taken at face value Cons don't look like they are in the pocket of the banks, not just yet.
