In spite of our common humanity and the shared pressures of globalisation, we still tend to live in separate worlds – silos is the cool word. Even public humiliation isnt always enough to shake people out of them. Think politicians, think bankers. Its a fact of life, although maybe not an immutable one, that if you deal in money, you take home more of it than you would if you dealt in spuds. In spite of everything, bankers at RBS believe they need millions not just to live, but as a mark of esteem compared to other bankers. This is called the market. Another mantra of our time is appointing the best man (sic) for the job. Sometimes, the choice is inevitable; but most of the time, theres any number of best people for the job, even at the top where the choice tapers. How indispensable are the bankers weve got? Were told just a few thousand of them are credited with earning 27% of the UKs wealth in 2007. So how badly do we need bankers to get out of the bankers crisis? On these questions, Peston says crunch time has come. Odds are that in spite of the sabre rattling, the UK government will bottle out, with Mandy as the weather-vane.
The scene is therefore set for brinkmanship of a potentially devastating sort for both Royal Bank and the government. The stakes are so high because of the sheer amount that Royal Bank – currently 70% owned by taxpayers – feels it needs to pay in bonuses to maintain the competitiveness of its investment bank.
The bankers case is quick in coming from Chris Blackhurst in the Evening Standard
It’s the system that is at fault, not RBS. Before Alistair Darling and his colleagues rush to condemn the RBS board, they should understand something: by rescuing RBS as they did, they invited the bank to continue operating in an industry where the payment of hefty bonuses is considered normal practice. If they don’t like such payouts they should get together with other world leaders and force their cessation – just cracking down on the one bank the British government owns is not going to solve anything, except damage RBS.
In the FT blogs, just a glimmer of a real world approach but not for this year
What is the solution? In part, make the banks less profitable. Lots of solutions exist here, but the best would be a big rise in the cost of capital – something governments have so far only tinkered with. But it is also about removing the expectation that a 30-year-old with a good degree, doing nothing particularly special, can take home £1m a year, or far more.