Banks urged to protect shareholders

1 November 2011

Banks in the UK must take more action to avoid exposing their long-term shareholders to harm through targeting return on equity (RoE), an official has stated.

Robert Jenkins, a member of the Bank of England's (BoE) interim Financial Policy Committee, has called on financiers to stop using this measure as a gauge of their success sooner rather than later, as doing so can have a negative impact on both their firm's performance and the wellbeing of their shareholders.

Mr Jenkins explained that this way of operating has "not contributed to the creation of sustained or sustainable shareholder value" and has instead been behind "volatility of returns, excessive leverage, reckless risk-taking and systemic instability".

With this in mind, the expert stated that it "has to go" in terms of being used as a "key motivator for bank behaviour".

This comes after a report by the Ernst & Young ITEM Club indicated that UK lenders look set to have to write off £3 billion ($4.8 billion) more in loan debt than has been expected in the near future.

By Gary Cooper

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