Thursday, December 03, 2009

RBS Board Adopting SNP Tactics

The SNP tactic leading into budgets and was (until it actually happened) the same about votes of confidence in their ministers to resign en masse and cause a new election they thought. Well it appears that the Royal Bank of Scotland board are to take the same approach over their bonuses.

The bank is looking to pay £1.5bn* in bonuses to its investment arm up from £900m last year. The board says it needs to pay this money to keep its top personnel with them and to keep them incentivised. Saying they need to act in the interests of all shareholders, not just the major one, a bit much after how those same shareholders were treated in recent years. Personally many of the rest of us have taking lower pay rises, reductions, loss of overtime payments, loss of bonuses with the only incentive to keep a job during the financial crisis. However, the issue does raise the issue of what type of bank the RBS is.

The Government bailed out the bank not to protect the investment arm but to protect the banking interests of the ordinary clients of the banks and their savings and banking facilities. These had been put at risk by that investment arm and its casino banking practices. Lib Dem Treasury Spokesman Vince Cable has been one of the most vocal proponents for breaking up the banking sector so that the high street banking sector that is all that most of us every have direct concerns about is separate from the speculative nature of the investment banks.

I recall when I first started studying economics the two were discussed totally separately, but soon after banking regulation was relaxed to allow both aspects to be carried out by the same company. However, maybe it is time for the Government to go back to those earlier principle to shore up confidence in our high street banks, after all you don't find an insurance company operating in the same premises as a bookmaker.

However, the issue with the bonuses is that the banks and the bankers were bailed out at tax payers expense and the government is going to look to get the taxpayers money back at some point. To spend £1.5bn of it on bonuses to staff, especially when many of those who bank with them are still struggling to make ends meet is lording it over everyone. Indeed if any other company director in any other line of business were to get a bail out from someone taking over 70% of the business in an interim agreement the profit would generally go to paying back that investor, even their own share of the profits to get out of the control quicker.

*This equates to 25% of the £6bn profit made by the investment arm of the bank this year.

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