London: 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 being 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 has provoked fury.
Early editions of this week’s Sunday Telegraph newspaper reported that RBS wanted to pay its staff nearly one billion pounds (1.48 billion, euro1.14 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.
Darling is expected to announce full details of the inquiry Monday. But he gave outline details in the Sunday Telegraph, saying: “Success should be rewarded. Failure should not.”
“I expect the review to make recommendations about the effectiveness of risk-management by banks’ boards, including how pay affects risk-taking...
“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 BBC reported that the probe would be fully independent. The Treasury was not immediately contactable for comment.
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.
And France has signalled banks must suspend bonuses to senior employees for 2008 if they want state aid.
Britain has launched two rounds of bank bailouts - a pound37 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 pound200 billion ($295 billion, euro220 billion) overall.
RBS is 68% owned by the taxpayer. The recently-merged HBOS-Lloyds TSB is 43 percent state-owned, while Northern Rock was nationalised last year.
RBS said last month it expects an annual loss of up to pound28 billion in 2008 - a record in British corporate history - due to the credit crisis and its part-takeover of ABN Amro.
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.