AS THE incoming chief executive of Barclays, Antony Jenkins at least made an attempt at restoring faith in the banking system by pledging to tackle the culture of greed and recklessness. Sadly, his defence yesterday of the bonuses he has agreed to pay this year hardly underpins that ideal.
He claims already rich bankers will move to a rival unless they are made even wealthier. But the argument that he needs to pay them more to stop them leaving barely holds water when the bank has suffered a huge fall in profits. If that is what happens when they stay, then why not let them go?
A similar contradiction applies to Royal Bank of Scotland, which reported an £8.2 billion loss and has set aside £576 million for bonuses, the biggest of which will go to those working in the investment banking division. The bank cannot claim, as it has done in the past, that these payments help to retain good staff when it wants to run down this division and make thousands of employees redundant.
New bonus caps have been introduced aimed at tackling the problem, but the bankers are getting around them by paying bonuses in shares or hiking basic pay instead. As Andrew Tyrie, chairman of the Treasury select committee said, few in the banking industry have acknowledged the need for reform.
Regulators and investigators must now add remuneration committees to the list of procedures requiring scrutiny. These are currently made up of board directors cosily deciding on each others’ pay packages. Although shareholders have the option of rejecting these decisions, the checks on these committees are far too light.
Chancellor may offer help for crowdfunding
NEW statistics have shown that £1,700 is being raised every hour through crowdfunding and that 2,600 projects have been backed since the beginning of the year – 45 a day.
Crowdfunding is certainly coming of age and is now being treated as a mainstream source of finance, not least because of the squeeze on lending by the banks.
Turning to friends and family has always been a pool to fish in for start-up companies, and crowdfunding is a similar idea on a bigger scale. Often the investors are known supporters of a particular enterprise, such as beer afficionados backing a new brewery, but in the main they are individuals combing lists of “the next big thing” in search of a good return.
Some will see one – though in reality only one in ten start-ups is likely to make a profit for its investors, so this is a gamble which the amateur investor should treat with caution unless he or she simply wants to provide money to support a business idea.
However, the risks involved, together with the growth of the crowdfunding phenomenon generally, have prompted the authorities to take a close look at how it should be regulated. The Financial Conduct Authority will next month propose some rules to protect investors. These are likely to involve some restrictions on who can buy, how much anyone can invest and how crowdfunding websites promote themselves.
The regulators need to strike a balance between preventing another financial crisis and imposing too much regulation, which would stifle risk and cut off a vital supply of funds. With bank lending still tight it would be no surprise to see measures in the Budget to encourage the so-called alternative finance market.