The risk profile of banks’ activity, rather than the size of the bonuses, is the most important matter for banks and regulators, a leading management blogger has advised.
Matt Rogan of the advisory company Lane4, headed by Adrian Moorhouse, said that the taxpayer was best protected by preventing a repeat of the high levels of risk-taking, rather than by reducing the quantum of bonuses per se.
‘The issue for me is not the P&L of the investment banks, but the balance sheets. If these annual profits are generated via excessive balance sheet risk, the man in the street gets hurt. I imagine less than 1% of this country's bankers have willingly endangered the health of their organisation's balance sheet.
’In my view investment bankers should be able to pay their people as much as they like as long as they can manage the downside risk. [President] Obama is absolutely right to push for stronger regulation of the banking sector, but politicians who petition for smaller bankers' bonuses are simply pandering for cheap votes and big headlines.’
President Obama surprised banks and the markets last month by calling for much tougher regulation on banking, including an end to proprietary trading – that is, trading with the banks’ own cash.
Banks were widely criticized for excessive leverage and risk-taking through trades in securitized assets, and for the incentives through bonuses to take these risks, but some of the banks that made the biggest misjudgments paid little in the way of bonuses, such as Northern Rock and Bradford & Bingley.
http://www.mattrogan.blogspot.com/