But such attempts at moral suasion are not working, and those in authority seem reluctant to do more. We are not an incomes regulator, says Hector Sants, chief executive of the Financial Services Authority (FSA). The watchdogs only sanction is to demand more regulatory capital from those banks whose pay policies appear to be putting their firms at greater risk.
The Treasury could influence matters at RBS and Lloyds Banking Group, two big banks in which it has substantial shareholdings, but is reluctant to micromanage. There was not a murmur when RBS hired a head trader for a rumoured 7m in total. The government worries that any attack on bankers pay could drive financiers offshore, depriving the exchequer of much revenue. City bonuses, which dropped from 10 billion in 2007 to 4 billion in 2008, could bounce back to 6 billion this year, says the Centre for Economic and Business Research (CEBR), a consultancy.
They mirror the health of a financial-services sector that in the good times brought in up to 67 billion in annual tax revenues, estimates PwC, an accounting firm. This fiscal year the figure could drop to 39 billion, says Douglas McWilliams at the CEBR, although banks recently buoyant business may increase it. A windfall tax on profits, discussed by both government and opposition, might put any recovery at risk. So could the slightly softer option of preventing banks from offsetting past losses against future tax bills.
The reluctance to bash bankers bonuses stems from recognition that wholesale finance is a global business. Bankers are highly mobile, says Marcus Agius, chairman of Barclays. He argues that banks in Britain must be free to pay as much as those elsewhere, but says he is agnostic about what that level should be.
National and international proposals to reform pay at regulated financial firms are similarly agnostic. They mostly do not spell out how much public disclosure there should be of big pay packages, other than those for board members. An exception is the communiqu from the Group of 20 (G20) big countries in September, which requires a detailed breakdown of the remuneration of employees whose actions have a material impact on the risk exposure of the firm. Yet that measure is unlikely to be implemented, even though the big British banks and the London-based operations of global investment banks have agreed to it.
The FSA, for its part, is not bothered about public disclosure as long as it has the information itself. Sir David Walker, a former central banker charged with an official review of bank-governance practices, has suggested that bands of remuneration for heavy hitters outside the boardroom be disclosed. It seems that banks, in the absence of much more than appeals to their better nature, will be setting their own benchmarks as and when they please. Barclays began a review of its remuneration policies in 2008. It remains unfinished.
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