Page last updated at 01:15 GMT, Saturday, 13 September 2008 02:15 UK

HSBC chief backs bank pay reform

Stephen Green, Chairman of HSBC talks to Robert Peston

Bankers' pay needs to be reformed so they are no longer handsomely rewarded for deals that turn bad, the chairman of HSBC has warned.

Chairman Stephen Green told the BBC that the banking industry was too focused on short-term profits.

He said that current pay schemes did not reflect long-term performance.

He indicated remuneration was one of the causes of the credit crunch as some staff were paid too much for deals that ended up costing their banks a fortune.

Banks worldwide have lost around $300bn (170bn) from investments related to the sub-prime mortgage crisis.

Initially these bets on the sub-prime market, which lends to those with poor or patchy credit histories, were very profitable for banks as house prices rose and borrowers repaid their loans.

However, the market for mortgage-based securities turned sour last summer as defaults rose and the value of these investments plummeted.

We should probably all breathe a sigh of relief at this acknowledgement that banks' current woes... were self-inflicted

"There has been far too much focus on payments that are very short-term focused, people who pick up the tab for short-term profits, without having to bear the costs of long-term impairments," Mr Green said.

He said transactions should be rewarded handsomely only when they had yielded sustainable, long-term profits.

Mr Green, whose banking group - the second biggest in the world - has its headquarters in London, added that compensation levels should be set by the market but that they should be consistent with the long-term interests of the market as a whole and the shareholders of a given institution.

BBC business editor Robert Peston, who interviewed Mr Green for BBC News series Leading Questions, said few bankers had stood up and admitted that remuneration in their industry was one of the causes of the credit crunch - and none had who are as influential as Mr Green.

But our correspondent added: "It's all very well to recognise the need for reform - it's quite another to actually get banks and bankers to sign up for what many of them will see as a pay cut."

The full interview will be broadcast on the BBC News Channel on Saturday at 2130 BST.

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