Banks' bonus culture 'needs urgent reform'

14 April 2008

Multi-million annual bonuses for bankers must be reviewed in the wake of the credit crunch, the Financial Stability Forum (FSF) has suggested.

In fact, ministers agreed at the meeting in Washington, DC, that the industry's compensation system might have been partially to blame for the crisis.

"One of the striking features of recent events has been firms' sizeable payouts to staff in areas in which the firms have subsequently incurred very large losses as risks materialised," the Forum said in its report.

It added that these "arrangements" had "often encouraged disproportionate risk-taking".

Under the new system, bankers could face their bonuses being forfeited if their employer underperforms, the Daily Telegraph reports.

The FSF also recommended an overhaul among ratings agencies and a toughening-up of the Basel rules on security.

However, according to Angela Knight of the British Bankers' Association, the proposed reforms could do damage to the industry.

"Remuneration is a matter for shareholders and the industry only, which is where it should stay," she told the newspaper.

Become a bobsguide member to access the following

1. Unrestricted access to bobsguide
2. Send a proposal request
3. Insights delivered daily to your inbox
4. Career development