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UK probes bank bonuses



Britain is to conduct a review of bank management that will probe the link between bonuses and excessive risk-taking, Finance Minister Alistair Darling said in comments published Sunday.

Prime Minister Gordon Brown's government has launched two rounds of bank bailouts worth hundreds of billions of pounds which has seen the state take big stakes in high street names like Royal Bank of Scotland (RBS).

But the prospect of banks which have been propped up by the state handing hefty bonuses to executives and traders has provoked fury.

The Sunday Telegraph newspaper reported that RBS wanted to pay its staff nearly one billion pounds ($1.48 billion) in bonuses this year.

"The City bankers who ruined their banks but have been kept in employment by the taxpayer now demand we pay them their bonuses to maintain the aristocratic lifestyle to which they have become accustomed," Vince Cable, finance spokesman for the centre-left opposition Liberal Democrats, wrote in the Mail on Sunday.

"They know no shame and take no blame. They are lucky the British have no guillotines in stock."

Darling is expected to announce full details of the probe on Monday but wrote in the Sunday Telegraph that he was "setting up an independent review which will examine how banks are managed".

"Questions should have been asked earlier, especially in banks' boardrooms, when banks seemed to be so successful," he added. "Why were some directors so taken aback when the banks for which they were responsible came to grief?"

He expected the review "to make recommendations about the effectiveness of risk management by banks' boards, including how pay affects risk-taking".

Darling added: "Of course, no government should try to remove risk-taking from the system. Nor would we want to. But government can act to protect people when excessive risk-taking threatens us all."

The announcement comes as pressure grows worldwide on banks which have been helped by the state to cut back financial rewards for top staff.

On Wednesday, US President Barack Obama said executives of finance firms taking government bailouts would have their salaries limited to $500,000.

France has signaled banks must suspend bonuses to senior employees for 2008 if they want state aid.

Britain has launched two rounds of bank bailouts during the credit crunch - a £37 billion recapitalisation scheme in October and a second last month.

The government did not put a figure on the value of the second, but it is reportedly some £200 billion overall.

RBS is 68 per cent owned by the taxpayer. The recently-merged HBOS-Lloyds TSB is 43 per cent state-owned, while Northern Rock was nationalised last year.

RBS said last month it expects an annual loss of up to £28 billion in 2008 - a record in British corporate history.

Brown said this week that he expects banks' decisions on awarding bonuses to "to reflect the conditions of the economy and the performance of the banks.

"There are no rewards for failure in what we are proposing," he said.

Darling, meanwhile, urged them to show "far more responsibility".

"I know people feel angry about excessive bank bonuses," he added.

"People who work hard should be rewarded for their effort. But it would be wrong to reward people whose excessive risk-taking brought the banks down, causing misery to millions of their customers.

"Success should be rewarded. Failure should not."