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Greed is good again in the UK.
The UK’s Financial Conduct Authority said Tuesday that it’s ending a cap on bonuses for bankers that’s been in place since 2014. The cap was originally an EU rule that Britain held onto post-Brexit and born out of the economic rubble of the 2008 financial crisis.
As Their Affluence Expands…
Exactly one year ago, UK Prime Minister Liz Truss resigned her post following a disastrous few weeks during which her government’s “mini-budget” sent the UK economy into a tailspin. Moody’s only just reversed its negative outlook on the country a few days ago, saying that its decision to upgrade the UK was partly due to Chancellor Jeremy Hunt abandoning Truss-era policies. However, eradicating the cap on banker bonuses is the only policy to make it out of Truss’ premiership alive.
The UK government is touting the decision as a way to reinvigorate its financial sector. The Bank of England’s Prudential Regulation Authority (PRA) said Tuesday that outside of the EU bankers rarely have their bonuses capped:
- The 2014 rule capped bankers’ bonuses at twice their base salary. The FCA and PRA argued in a joint statement that this meant UK banks raised base pay to stay competitive, meaning that in leaner years they were less able to cut costs.
- Across the pond, bonuses have been in for some haircuts over the past nine months. Wall Street banks cut bonuses by as much as 30% at the end of last year, and compensation consultant Johnson Associates predicted in August that M&A investment bankers could expect a 20%-25% drop in bonuses.
A Silver Lining: The 2008 crisis led the UK government to nationalize the Bradford & Bingley and Northern Rock banks. While that may have been a deeply embarrassing moment for all concerned at the time, now the UK Treasury is lined up to net a £100 million surplus from the banks’ pension schemes, sources told the Financial Times.
