Ismail Erturk on The Bank of England’s plans for bankers bonuses

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This is a very radical move by the Bank of England to prevent private gains at the expense of taxpayers in the banking sector. What this measure says is that banks themselves have failed to align their interests with the society’s.  Additionally, banks and bankers continued to misbehave since their direct and indirect bailouts by the taxpayers to receive high bonuses as the cases of mis-selling and rate fixing in various financial markets have shown.

However, whether this big stick by the Bank of England is going to be effective is questionable because there are lots of legal issues to be dealt with. The Bank of England has to prove that it has the legal powers to carry out its threat given that bankers will employ best legal advice to prevent such clawback by the regulators. And this new clawback measure, although it is a positive move, has an element of closing the stable door after the horse has bolted. The regulators should intervene at the moment when the compensation packages are agreed to make sure that risk and reward are fairly balanced in banking.  Such measure would have better societal outcomes.

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