Bonus crackdown plan 'dangerous'

The former chairman of The Royal Bank of Scotland, Sir George Mathewson, today warned that cracking down on bankers' bonuses could be a "dangerous route to go down".

Speaking on the Today Programme, Mr Mathewson spoke of the dangers of giving the Financial Services Authority (FSA) any actual, real power to challenge the banks on their remuneration policies.

Mr Mathewson said: "the FSA already has the powers it needs to condemn bonuses and there seems to be little point in going down the legislative route to give the FSA power to condemn the bonuses even more".

He went on to say: "the taxpaying public fail to understand the importance of the bonus culture that is so vital for the economic growth that benefits us all. When a banker has had his astronomically large bonus confirmed it is normal practice to head down to the nearest All Bar One in the City and brag and shout, in the most obnoxious way possible, about the size of the bonus whilst bankers from other banks are within earshot. This is a key strategy utilised by the banks, albeit a rather unsophisticated one, to inform the other banks about how successful and prosperous they are.

"Obviously there has been a slight dip in the market this year but paying smaller bonuses to reflect this might indicate that the bank had had a bad year and cause shares in the bank to plummet. I myself have shares that would plummet. And let's not forget the devastating effect it would have on the ego of the individual banker. These issues dwarf the £1trn the government has paid over to rescue the banks".

Mr Mathewson also suggested that denying bankers' bonuses could seriously threaten the rule of law, an issue that has been of primary concern amongst taxpayers: "Giving the government the authority to tear up contracts between private citizens potentially erodes fundamental legal principles and shakes the very foundations of our constitution. Even when it concerns an organisation that is 70% owned by the taxpayer", Mr Mathewson said.

When questioned about the morality of paying large bonuses to those working for rescued banks, Mr Mathewson responded: "Let's not forget the important issue here. The raison d'être of any bank is shareholder wealth maximisation and banks are answerable to its shareholders. How else could the banks justify stealing £30 from customer accounts each time the customer goes over their overdraft limit and compounding any financial difficulties they may already have in a time of recession - a recession created by excessive risk taking by the banks? Our moral obligation lies with the shareholder. Even if the shareholders are, in reality, disparate groups of institutional investors such as pension or insurance companies run by fund managers, often old chums of the bankers from public school and Oxbridge, or perhaps Exeter at a push, who are also rubbing their hands together in anticipation of a nice Christmas bonus".

John McFall MP, chairman of the Treasury Committee, also speaking on the Today Programme, suggested that 'radical overhaul' of the banking system is required. This was laughed off by Mr Mathewson who responded: "It's naive of the government to think they can change anything and they know as well as anyone that the banks have them by the short and curlies. It may be the case that the banks are operating the biggest, most elaborate Ponzi scheme in recorded history and so, by definition, will have to fail eventually, but this is some way off and will not happen prior to the bankers being awarded their substantial Christmas bonuses".

Shortly after the interview, Mr McFall asked Mr Mathewson for a loan of £20 for a taxi home.

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