Ed Miliband launched an attack on the mainstream banking system this week, criticising bonuses and calling for a shake-up at the big banks.
Chris Leslie, Labour’s shadow chief secretary to the Treasury, had called for George Osborne to block moves by the Royal Bank of Scotland (RBS), which is 80% owned by the taxpayer, to pay some of its top bankers up to twice their annual salary in bonus payments. Despite the chancellor refusing to put a stop to such measures, Labour leader Miliband said that a £1m bonus should be “quite enough”, and that further plans to reform the banking sector were to be outlined on Friday.
His subsequent speech promised a “new culture of long-termism” within banking, if the Labour party won the general election in 2015.
For Charles Middleton, managing director of the sustainable bank Triodos, bankers’ bonuses in particular ought to be analysed pragmatically.
“Although the issue of large bonuses is such a sensitive issue, I think we need to separate the emotional aspects from the reasons that bankers are being paid these bonuses”, he tells Blue & Green Tomorrow.
Why is a large amount of taxpayers’ cash being given to bankers? While much of society sruggles to deal with stagnant wages and the rising costs of energy, fuel and food, bankers at private and state-owned institutions – who, let’s face it, are already paid handsomely – are getting twice that amount as a reward for what can only be described as irresponsible and unsustainable practices within their firms.
We know that RBS was named and shamed as one of the institutions failing small businesses in recent years, and despite everything that has gone on, its Global Restructuring Group was accused of the “shocking treatment” of business customers, according to a government adviser. And that’s without fines for Libor fixing and criticism over fossil fuel funding.
“What are these bankers being incentivised to do?” Middleton asks.
“If the payments are being distributed among bankers for clearing up the acts of the bank, that’s all well and good, but I would certainly like to see the argument being geared around what is going on within these organisations.
“If these bonuses are performance-related, then it is important to look at what performance consists of. If performance is considered as making maximum profits, whatever the costs to societal, cultural and environmental conditions, then that is absolutely not right.”
When asked whether he would take a bonus worth double his annual salary, Middleton says, “I wouldn’t work for an organisation where that happens. If I was being incentivised to make more of an impact with the money we source – it would be more relevant to my job.”
The Triodos managing director talks about the concept of the “local bank”, saying that many based on this model have a better understanding of their customers, competitors and the conditions within which they are operating.
“This model goes back to the historical concepts of banking, where the bank serves the customer”, he says.
The trouble is, with mainstream banks such as RBS, the performance of the bank is not aligned with the performance of society. Whilst banker-bashing may have become a favourite pastime for many in the years since the financial meltdown, Conservative ministers such as David Cameron and George Osborne are defending their decision to pay bankers excessively large bonuses.
Ed Miliband’s proposals on Friday to radically restructure the British banking system as we know it, including promising “long-termism”, may be a welcome measure for some.
Middleton welcomed the measures, but said, “It’s essential that any new challenger banks, formed from the constituent parts of the existing banks or otherwise, are not cut from the same cloth”.
“This goes much further than market share, high street presence and remuneration, to a fundamental change in their reason for being, serving society rather than themselves. It means banks actively supporting the development of a more healthy and sustainable economy, acting with true integrity and not forsaking principles for the sake of profit”.
The fact is that banks have behaved badly in recent years, but whoever takes on the task of transforming the banking system faces an arduous challenge in radicalising the cultures embedded deep at the heart of the institutions themselves.
Banks do not exist solely for the maximisation of profit; they are designed to serve society, communities and people. A basic acceptance of this fact would represent a small step down a very long road.