Bankers face fresh calls for an end to bonuses
UK FINANCIAL institutions last night faced yet more calls for bonuses to be cut, after the Bank of England Governor said they should brace themselves to withstand the “extraordinarily serious and threatening” economic situation.
In yet another worrying report on the economy, the Bank of England’s financial policy committee (FPC) said the eurozone crisis was the biggest threat to the UK’s banking system and called on banks to build up reserves to withstand European meltdown.
Sir Mervyn King revealed that the Bank itself was making “contingency plans” in case of a eurozone break-up, although he declined to reveal precisely what they were.
Sir Mervyn said it did not make sense to say that there was “a single well-defined event against which we have to make contingencies”. But he added: “There are many ways in which the future could play out.
“Maybe it [the eurozone] won’t break up, maybe it will continue in various forms, but maybe there will still be questions of default.”
Earlier in the week, six central banks, including the Bank of England, the US Federal Reserve and the European Central Bank, took action to encourage lending between banks in order to keep the global economy moving.
But Sir Mervyn said that, “ultimately, governments will have to confront the underlying causes”.
Speaking in his role as chair of the interim financial policy committee, the Governor said: “In the UK, we must try to bolster the resilience of our financial system to better withstand the storms that may come in our direction.”
The report comes after Downing Street warned last night that Britain was in the grip of a second credit crunch.
Sir Mervyn said one way for UK banks to gain further strength would be to raise money by issuing new shares.
The FPC, which only has an advisory role, also said that banks should keep lending, but should cut dividends and bonuses in order to help build up their financial reserves.
The suggestion that there should be more cuts to the bonuses that have caused so much public anger during the financial crisis met with approval from Willie Rennie, the leader of the Scottish Liberal Democrats. He said: “The Governor of the Bank of England speaks for many people who want to see bank bonuses cut.
“Bank bosses should listen this time and cut bonuses so they can improve lending to businesses to create jobs.”
The SNP’s Treasury spokesman Stewart Hosie said: “The difficulties in the eurozone are clearly profound.
“With evidence of a lack of confidence in the wholesale funding markets, the European central bank, and central banks around the world, must provide all the support they can to ensure liquidity and, for eurozone countries in particular, to ensure that their banks are capitalised to withstand future shocks.”
There were more warnings of eurozone collapse during a debate in the House of Commons when the former Tory chancellor Lord Lamont said the cost of bail-outs was becoming “astronomical and potentially disastrous”.
Lord Lamont said impact on the UK economy could be “even grimmer” if the eurozone is propped up by bail-outs, adding that such an approach would sap confidence.
The solution would not be “painless” but action was needed to prevent a “crisis turning into complete chaos”.
Speaking in a debate in a Lords grand committee, he told peers that while a eurozone break-up had been “unthinkable” a couple of years ago, its make-up would probably be very different in a couple of years’ time.
He warned that if Germany pursued a “minimalist” policy towards the euro through bail-outs, there would be a recurring crisis every few months with countries requiring help.
Backing Chancellor George Osborne’s policy of fiscal consolidation, Lord Lamont said he believed the current situation represented a “very big threat” to the UK economy.
“I am not advocating or supporting a change in the structure of the eurozone or saying that countries should depart. But it would be foolish not to recognise that this was on the agenda and was something that required thinking about,” he said.
In fact, the leaders of France and Germany will meet next week and plan to push for fundamental changes to the European treaty governing the currency shared by 17 nations, French president Nicolas Sarkozy said last night.
He said that during their meeting in Paris on Monday he and German chancellor Angela Merkel will unveil proposals to try to lift Europe out of its debt crisis and “guarantee” its future.
“France will push with Germany for a new European treaty refounding and rethinking the organisation of Europe,” Mr Sarkozy said.
Search for a job
Search for a car
Search for a house
Weather for Edinburgh
Thursday 23 May 2013
Temperature: 5 C to 10 C
Wind Speed: 23 mph
Wind direction: North west
Temperature: 4 C to 13 C
Wind Speed: 17 mph
Wind direction: North east