Page last updated at 10:57 GMT, Sunday, 27 September 2009 11:57 UK

Brown to 'ban old bonus system'

Gordon Brown says "enough is enough" when it comes to the old system

Prime Minister Gordon Brown has told the BBC that he will "ban the old bonus system" and force banks to act in a more responsible manner.

He said that banks had not understood the damage they had done to the economy and that he would be introducing tough new measures to bring them into line.

"We are going to clean up the system once and for all," he said.

The measures will "represent the toughest action of any country in the world," Mr Brown added.

More powers

"We are not going to stand by and return to the bad old days," he said on the BBC's Andrew Marr Show.

To this end, the prime minister said the government would be bringing a new Business and Financial Services Act to parliament in the "next few weeks".

Ministers feel it may help to put fire into the belly of the Financial Service Authority, the City watchdog, to enshrine in law what the G20 has just agreed on bonuses
Robert Peston, BBC business editor

This legislation was first outlined by the Chancellor Alistair Darling in July.

Under the terms of the act, the UK financial watchdog - the Financial Services Authority (FSA) - would be given the right to intervene to stop banks taking too many risks.

The act would "ban the old bonus systems and make it impossible for firms to go back to using them," Mr Brown said.

Companies that did not comply with the new measures would have penalties imposed on them, he added.

Speculators and short term deals would no longer be rewarded so highly, he said.

The prime minister argued that the measures were necessary because there was already evidence that banks wanted to return to paying big bonuses that encouraged the excessive short-term risk taking that contributed to the financial crisis.

Excessive bonuses have caused public outrage in the US and in Europe, particularly at banks that have received state aid during the financial crisis.

But despite the backlash against what many see as excessive pay, a number of top banks have already been setting aside huge sums of money to pay in bonuses.

Global push

The comments come after US President Barack Obama hailed "tough new regulations" for global financial institutions after the G20 summit in Pittsburgh on Friday.

The group of leading economies agreed that bonuses should no longer be guaranteed for many years, and that a part of them should be deferred to encourage longer-term investment strategies.

They also agreed that bonus payments could be clawed back if a bank makes a loss, and that they should not exceed a certain percentage of a bank's revenue.

But there was no agreement that bonuses should be capped, as some leading nations had been calling for.

The only leading economy to go this far is the Netherlands.

The G20 also agreed to take action on the capital reserves that banks need to hold.

It said it would come up new rules on reserves by the end of next year.

If banks had held more money in reserve, they would not have got into such trouble when the loans that they made could not be repaid.

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