Despite bank failures and bonus criticism: London wants to reopen bonus limit for bankers New York trial against Trump scheduled for March 2024

After the failure of Credit Suisse, everything in Bern seems to lead to the convening of a parliamentary committee of inquiry (PUK). Should the government have assessed the initially apparently gradual and then suddenly rapid decline of the large bank differently? Have serious mistakes been made? Who is to blame?

While the PUK is likely to soon address these and other thorny questions, Parliament may be debating a blanket ban on bankers’ bonuses before the summer holidays. The National Council has already approved a similar initiative by the Social Democrats. The conservative-dominated Council of States is less inclined to such ideas, but after the CS debacle, many scenarios suddenly became conceivable.

The financial center of London now wants to go in the opposite direction to Switzerland. The conservative Daily Telegraph reported in its Saturday edition that the Financial Conduct Authority, the City’s regulator, recently sent a proposal to reform bonus and salary rules in London’s financial sector to the hearing. The reform should help the financial center on the Thames to become more competitive.

Endless laments

In recent months, the Daily Telegraph has repeatedly issued alarming reports of the declining competitiveness of the City of London. On the one hand, there were the apparently frequent shifts of British companies, which preferred the major US stock exchanges to the London Stock Exchange when listing their own shares. Another time it was the lack of stock exchange listing for foreign companies, as can be seen surprisingly often on the Six Swiss Exchange with the secondary listing of many Chinese companies. And currently it is the 200 city jobs that the major British bank Barclays plans to move to Paris.

Under the keyword “Big Bang 2.0”, representatives of the city have lobbied the government for a significant decoupling of financial market regulation from that of the EU, which was also decisive for London until Brexit. In the current reform proposal on bonuses and wages, the city watchdog mainly envisages a relaxation of the remuneration rules for smaller financial companies.

For companies with a balance sheet total of up to £4bn, there will no longer be mandatory conditions for top earners to reclaim bonuses if the company performs poorly. Larger financial companies with total assets of up to £20bn should also benefit from regulatory simplifications.

Of course, finance companies of this size are less traditional banks than other players, including hedge fund providers. According to industry observers, the EU directive adopted in 2013 and entered into force in 2014, which tightens bonus rules for EU states based on the experience of the financial crisis, has had a significant impact on this industry, in which managers with special profit-sharing models sometimes earn astronomical amounts.

“A crazy system”

The bonus limits for bosses of major banks, as they have been in force in the EU and Britain since 2014, are also under discussion. Since then, the bonuses of European bank bosses may not exceed twice the fixed salary. The regulation aims to limit managers’ incentives to take major risks in order to increase their own salary.

The Telegraph quotes Sam Woods, who is responsible for overseeing financial stability at the Bank of England, as a particularly vocal critic of the bonus cap: its only effect is to increase fixed salaries. “It’s a completely insane system.”

In February, an empirical study by Germany’s Halle Institute for Economic Research also found that the heads of systemically important banks continue to accept high risks despite bonus restrictions. They may have sensed what Credit Suisse’s creditors and shareholders were allowed to experience on March 19: Systemically important major banks cannot go under — whatever precautions the legislature has taken to ensure the orderly resolution of such institutions in the event of a crisis. (aargauerzeitung.ch)