Banks aren't making as much money... what next?

21 October 2014

Bank Those beloved banks of ours aren't making as much money as they'd like, so they're saying that they're going to have to cut everyone's pay. This is according to a senior regulator at the Bank of England.

Sir Jon Cunliffe, the central bank’s deputy governor for financial stability, said that it's all well and good that shareholders have suffered since the financial crash, but salaries and bonuses are still far too high.

He said: "It is noticeable that, since the crisis, for the industry as a whole, employees have received a larger share of a smaller pie relative to shareholders. In the new world, pay bills may well have further to adjust."

Cunliffe said that in the decade before the crash, profits attributable to shareholders were around 75% of total pay at UK banks and 60% for global banks. "Since the crisis that picture has changed markedly," he added. Shareholders in global banks get 25% of total pay now.

"Across the big UK banks in 2013, the fraction had fallen to just 2% - i.e. to 2 pence per pound paid to staff," said Cunliffe. He added that it is "unlikely that we will see or want to see again" the kind of returns that were being made before the crisis, with respect to the tougher rules brought in to make banks safer.

"It is important, in seeking to restore returns, that banks and investors do not think in terms of back to the future" he added; "with less leverage and more liquidity in banks, required returns ought generally to be lower than prior to the crisis. Trying to offset that by taking excessive risk or evading regulation will not, I think, be tolerated in the new world."

All in all, we can expect that this will be passed on to the customer because, when banks want to find more money, overdraft charges and the like will suddenly start working against customers.

TOPICS:   Banking

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