Help
BBC NewsAndrew Marr Show

MORE PROGRAMMES

Page last updated at 10:22 GMT, Sunday, 9 August 2009 11:22 UK

Financial Services Chief

On Sunday 09 August Sophie Raworth interviewed Hector Sants, Chief Executive, Financial Services Authority

Please note 'The Andrew Marr Show' must be credited if any part of this transcript is used.

Chief Executive of FSA claims "No return to the days of risk-fuelled bonuses".

SOPHIE RAWORTH:

Hector Sants, Chief Executive, Financial Services Authority
Hector Sants, Chief Executive, Financial Services Authority

Now Britain's banks are in the spotlight again.

They've been reporting their half yearly results, and with some of them still making multi billion pound profits despite the gloom in the rest of the economy, there's talk that bonuses are back.

The idea that last year's financial meltdown would bring about a cultural change in The City seems to have been rather, well, short-lived. Well the Financial Services Authority is for now responsible for regulating the banks.

I'm joined by its Chief Executive Hector Sants.

Good morning.

HECTOR SANTS:

Good morning.

SOPHIE RAWORTH:

We'll talk about bonuses in a minute, but first of all rather mixed messages from the four big banks this week.

Is the banking sector do you think through the worst of it?

HECTOR SANTS:

Well of course the FSA doesn't itself make economic forecasts - we use the Bank of England's numbers - but as a regulator obviously we can see what's going on in the day to day economy, and I think you would say that the financial sector is stabilising.

I think when the economy as a whole starts to recover - and the extent to which it will recover is still debatable, but we have moved to a 'when', not an 'if' question - then undoubtedly the financial sector is more stable.

SOPHIE RAWORTH:

There are some green shoots, aren't there, but I mean do you think they're here to stay or do you think they could disappear again?

HECTOR SANTS:

I think from the financial stability point of view, we are reasonably comfortable that we do now have a stable position and that we won't see a significant deterioration in the financial markets, but of course that is different from the economic environment and the economic environment is still very, very difficult.

SOPHIE RAWORTH:

And how long do you think a recovery could actually take?

HECTOR SANTS:

Well, as I say, we're not economic forecasters. We do do stress tests and we continue to ask our banks to take the view that you would not expect the economy to significantly recover before next year at the earliest.

SOPHIE RAWORTH:

It's still very difficult for consumers, for customers though, isn't it?

HECTOR SANTS:

Very, very difficult. And of course the other of our key tasks is to make sure that consumers are treated fairly during these very difficult times when undoubtedly a number of them are under acute pressures.

SOPHIE RAWORTH:

Are you looking after consumers enough when it comes to mortgage arrears? You've been criticised for, what are the words, "leisurely approach" to you know people who've been charged £60 a month because they can't actually keep up with their mortgage repayments.

HECTOR SANTS:

Well, look, in a crisis like this, you can arguably never do enough. There are always consumers out there who are suffering pressures and they rightly expect the regulator to look after their interests.

We are doing our very, very best. We have more enforcement cases in the pipeline on that particular point and you can expect to see tougher action from us in the future.

We also, which I think is more important, have a fundamental review of the mortgage market under way, which will be coming out in the autumn.

SOPHIE RAWORTH:

But I mean a "leisurely approach", that's what they're saying. That's not what the customers and consumers need at this time, is it?

HECTOR SANTS:

Well we don't see it as a leisurely approach. That was obviously a comment from politicians. As I say, in difficult times there are always going to be issues. And of course enforcement process necessarily is and can at times I think be a frustratingly slow process from the perception of the consumers because enforcement processes have to be of a quasi-legalistic nature that take into account the importance of treating everybody fairly.

But there are more enforcement cases in the pipeline and people should be under no illusion. We take this matter extremely seriously and we understand the importance of addressing these issues as quickly as we can.

SOPHIE RAWORTH:

And it's obviously crucial for people that you do that. And bonuses seem to be back with a bang already.

HECTOR SANTS:

Well clearly banks have started to accrue more money for possibly paying out bonuses. I think one …

SOPHIE RAWORTH:

Up to £4 billion. That's one estimate.

HECTOR SANTS:

I think one of the slight misunderstandings at the moment is people haven't actually distributed that money. What they have said is …

SOPHIE RAWORTH:

(over) No, but they're putting that money aside. I mean £4 billion is the figure that was bandied about last week.

HECTOR SANTS:

Absolutely. They set the money aside which, if circumstances don't change, they would distribute or seek to distribute at the end of the year. But we're publishing our code next week, which will clearly lay out the bounds as to how those bonuses should be distributed. I think if you think about the bonus question, really it's helpful to disentangle it into three different questions. It's not as simple possibly as the media sometimes portray.

I mean, first of all, there is the question of are the way that those bonuses are calculated incentivising people to take unreasonable risk and put their institutions at risk of failure? Secondly, there's a question of in the aggregate are the banks distributing too much money for their own health? That's the total amount of money they pay to their employees.

Then there's the third question, which I think occupies a lot of media debate: somehow or other are those individual payments unreasonable, particularly at a time when obviously the state sector, the taxpayer is extending quite a bit of support to banks? The first two questions are the questions for regulators to address and our code next week will address those questions and make absolutely clear that you cannot calculate bonuses in a way which encourages unreasonable risk taking and puts the institutions at risk, which was the case in the past.

SOPHIE RAWORTH:

So I mean how are you going to enforce this though? How will you make sure that the banks don't … I mean they're already talking about guaranteed bonuses, which is one thing you've expressly said you don't want banks to be doing.

HECTOR SANTS:

We have made absolutely clear that we do not expect multi-year guarantees to be paid and we would not expect any bank to enter into any new arrangement offering multi-year guarantees as of now.

SOPHIE RAWORTH:

Are you going to be able to stop banks, the bottom line? Are you going to be able to stop banks handing out huge amounts of money?

HECTOR SANTS:

(over) Our job …

SOPHIE RAWORTH:

I mean RBS are saying they put aside £1.8 billion, for example.

HECTOR SANTS:

… our job is to make sure that banks in their compensation policies, in their bonus policies do not put those institutions at risk, which was what happened in the past. They do not pay out when they should not be paying out, they do not pay out when they have not made those profits. We can certainly ensure that that does not happen again.

SOPHIE RAWORTH:

So you can stop them paying the big bonuses?

HECTOR SANTS:

We can say to them if they pay out or threaten to pay out more than they should do, we will increase the amount of capital they hold and take enforcement action. The question of the size of individual payments is not one for financial regulators.

That is one for politicians and society as a whole. If politicians wish to take a view on that, then they should say so, but they should not be asking the regulator to carry out a pay policy. Our job is to make sure that banks do not pay out in aggregate more than they should do and do not put the banks themselves at risk.

SOPHIE RAWORTH:

Do you need a greater transparency in the way that banks are paying salaries and bonuses? The government backed Walker Review. That's what they're asking for. Should you be publishing the bonuses, the salaries?

HECTOR SANTS:

(over) Well we as a regulator don't need more transparency. One of the measures we'll be announcing next week is a requirement for all banks, all UK banks, to produce for us a clearly articulated pay policy, approach, and we will sign off on that. So we have all the transparency we need.

The question as to whether the public should know more, again I think is a different question and again is one primarily for politicians, not for the regulator. We have the necessary powers in that area to get the information we need to enforce the policies that we will be introducing next week.

SOPHIE RAWORTH:

It's a rather awkward situation this, isn't it, because it's quite a bitter pill for the taxpayer to swallow. I mean you've got you know these banks which have, like RBS - 70% owned by the taxpayer - and yet you've got all this talk of enormous bonuses. £1.8 billion is what they've set aside for their investment arm. It's quite a bitter pill for the taxpayer to have to swallow. Do you think the banking sector should be showing more humility at this time?

HECTOR SANTS:

Well of course the question of how the total pot of profits should be split between the shareholder and the employees is one primarily for the shareholder to answer.

We can take a view on how much should be distributed in relation to maintaining the banks' stability, but the question of how that amount is then split up between employees and shareholders is one primarily for the shareholders.

And of course in many cases now, the government is the shareholder. So I think that is a question for government and politicians. Asking the regulator to solve that, I would say is arguably passing the buck.

SOPHIE RAWORTH:

Okay, Hector Sants, thank you very much for joining us.

INTERVIEW ENDS


Please note "The Andrew Marr Show" must be credited if any part of this transcript is used.


NB: This transcript was typed from a recording and not copied from an original script.

Because of the possibility of mis-hearing and the difficulty, in some cases, of identifying individual speakers, the BBC cannot vouch for its accuracy


Your comments

Name
E-mail address
Town or City
Country
Comments




FEATURES, VIEWS, ANALYSIS
Has China's housing bubble burst?
How the world's oldest clove tree defied an empire
Why Royal Ballet principal Sergei Polunin quit