Mark Carney attacked bankers' windfall pay agreements



The new Governor of the Bank of England criticised the remuneration "windfall" enjoyed by bankers and supported plans to pay them in bonds, suggesting tougher regulations could be financed by cutting "personnel" costs.

In a 2009 speech, Mark Carney said the "current windfall" on bonuses "sits uneasily" with the aim of tying remuneration to long-term performance. He warned that the banking industry lacked "sensitivity" and was in danger of "hubris".

Mr Carney, who was appointed last week , also blamed the global financial crisis partly on the fact that "many financial institutions have pay structures that reward short-term results and encourage potentially excessive risk-taking".

In a speech to the Toronto Board of Trade in 2008, the then governor of the Bank of Canada said that "regulators need to consider carefully the incentive impact of compensation arrangements as they assess the robustness of risk-management and internal control systems". He stopped short of recommending that financial regulators should intervene directly in bankers' pay.

In statements that could hint at how he will approach bankers' pay when he starts his new role in London next summer, Mr Carney spoke strongly of the need for banks to control their operating costs. He told Bundesbank in 2010 that the costs of implementing tougher liquidity standards and capital requirements could be offset by shaving "personnel expenses" by 10pc. This was put forward as a way of paying for the global regulatory standards known as Basel lll, due to be introduced from 2013.

At January's World Economic Forum in Davos, he was said to have expressed support for plans to pay part of bankers' bonuses in bail-in bonds, which are converted into equity if a bank's performance dips. He was reported to have said these bonds "could be part of the solution to recapitalising weak banks".

Bail-in bonds were later proposed in an EU document published in October. Analysts suggested that the plans could reduce bonus payments by as much as 70pc.

Canada's banks continued to pay out big bonuses throughout the crisis. Its (Euronext: ALITS.NX - news) six biggest banks set aside C$9.3bn (£5.84bn) in bonuses for their best performers, up by 7pc from the previous year.

They have also seen increased profits, up by 15pc last year, driven by higher consumer loan volumes and capital markets activity. It is believed that Mr Carney's comments on compensation were directed at the international banking sector, partly because Canada's pay policy compliance is overseen by a regulator.

The view from Toronto's Bay Street, Canada's financial hub, is that Mr Carney will want to raise the issue of pay in his new role. Janet Ecker, of the Toronto Financial Services Alliance, said Mr Carney understood the "connection between credibility with the public and sound compensation".

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