Downing Street Says » Walker Review

Asked about the timing and the difference between the Walker Review announced today and what the Financial Services Authority (FSA) was doing, the Prime Minister’s Spokesman (PMS) said that the two were different. The FSA announced last June that they would look at the extent to which a financial institution’s pay and bonuses policy could affect how the riskiness of that financial institution was assessed from a financial regulation perspective.

The Government was announcing something that built on what we were already doing and had been doing since last October in relation to bank bonuses, particularly regarding those institutions we had shares in. In October we said that there would be no cash bonuses for board members and a number of senior managers were removed. There was an ongoing discussion about the remuneration policies for those financial institutions that wanted access to our asset protection scheme.

The David Walker review would look at the longer-term issue of how we improved corporate governance in banks and how we moved away from the bonus culture that had prevailed up until this point.

It was wrong to see the Walker review as a reaction to issues that we were currently facing in relation to bonuses because we were dealing with those issues now.

Put that pleas had been made to bankers to not accept bonuses, the PMS said that it was not about making pleas. We were taking action in relation to bonuses in institutions we had shares in by saying that there would be no cash bonuses at board level. We were in ongoing discussions with the Royal Bank of Scotland (RBS) and the Chancellor had made clear yesterday that we wanted to limit bonus payments as much as possible. There was an issue in relation to contractual and legal obligations that some of these institutions had, and that was why we had said that the individuals who had legal entitlement to these payments should ask themselves whether or not accepting these payments was the right thing to do.

We were also looking more generally at remuneration policy in all the banks that wanted access to our asset protection scheme, announced a couple of weeks ago, to deal with bad assets on bank balance sheets and that went beyond the banks that we had ownership of.

Put that in retrospect some of the profits banks had made were non-existent, the PMS said that the priority was dealing with the issue we faced now which was payment of bonuses related to financial performances of last year, this year and future years.

Asked if there had been any indication from banks that they would be willing to relinquish bonuses, the PMS said that there were ongoing discussions with RBS on this. As and when there was more to say either the Government or RBS would do so.

Put that today’s FSA report said the recession would be deeper and longer than previously thought, the PMS said that the Treasury updated its forecast twice a year in the Pre Budget Report and the Budget. That was the right way to do it and they would look at it in a considered way. We had seen some very bad economic news from many other countries in recent months and deterioration in the global outlook. We had seen sharp falls in industrial production in Germany just last week for example.

1 Comment »

We have made a submission to the Walker Review which explores this bonus issue – I think it’s a bit more subtle than implied by the comment above. Remuneration policy is important but it in turn is subject to the relationship between shareholders and banks, which has its own moral hazard problem created by limited liability and deposit insurance.

More details at http://www.knowingandmaking.com/2009/06/our-submission-to-walker-review.html
Comment by Leigh Caldwell — 4 Jun 2009 on 6:01 pm | Link

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» Monday, February 9, 2009

Walker Review

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