Page last updated at 10:56 GMT, Sunday, 16 August 2009 11:56 UK

Darling vow on City bonus rules

Alistair Darling
Mr Darling said he was not against all bonuses

The government is ready to intervene over City bonuses, to stop bankers from taking excessive risks.

If bonuses pose a "systemic risk" to the banking system, Chancellor Alistair Darling would consider curbing them, the Treasury told the BBC.

The comment came after the chancellor told the Sunday Times large rewards for bankers had clearly encouraged risk-taking and contributed to the crisis.

The Tories have also said they would seek to end banks' big bonus culture.

In the newspaper he said he understood public anger over the issue and if tougher legislation was required, ministers would act.

Under Treasury plans, the banking regulator, the Financial Services Authority (FSA), would be given powers to control bonuses in all banks, a move which is likely to require new legislation.

New rules

"If we need to change the law and toughen things up, we can do that," Mr Darling said.

"I'm quite clear that some of the problems we have today were caused by the fact that some traders were incentivised to take risks which neither they nor their bosses fully understood."

The new rules would cover the whole of the banking system not just those institutions that are part-owned by the taxpayer, such as the Royal Bank of Scotland (RBS) and Lloyds.

The public is rightly concerned because the taxpayer has had to stand behind a number of these banks, and the whole banking system in effect
Chancellor Alistair Darling

Mr Darling's announcement follows criticism of the FSA over its perceived failure to take a tougher stance on bonuses.

It has issued a new code stating awards should be linked more closely with the long-term profitability of banks and that they should not be guaranteed for more than a year.

But Mr Darling said more action was to come.

"The public is rightly concerned because the taxpayer has had to stand behind a number of these banks, and the whole banking system in effect," he said.

"So people want to make sure we don't get ourselves into this situation again. The FSA code is only part of our approach."

'Unacceptable'

He said he was not against bonuses that rewarded "good behaviour and long-term growth", but they needed greater regulation.

"What you can do is make sure you don't get yourselves into a situation where firms actively have a pay system that results in them being exposed in a way that led to ruin, which it did in a number of cases," he added.

Mr Darling did not stipulate whether he would cap bonuses or ban those that had a guarantee.

Ministers are currently waiting for the delivery of an independent review of bonuses and corporate governance by Sir David Walker, former chairman of Morgan Stanley, before introducing new laws.

Shadow chancellor George Osborne revealed on Saturday a Conservative government would also seek to stop the payment of large bonuses across the banking system.

He told the Guardian that handing out big awards backed by state guarantees was "unacceptable", even for banks that were not part-owned by the taxpayer.

The Tories would also scrap the FSA and hand its powers to a strengthened Bank of England.

However, the British Bankers Association (BBA) has said pay rules are already "more stringent" in the UK than in any other country.



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SEE ALSO
Bankers defend culture of bonuses
15 Aug 09 |  UK Politics
Tories want end of bonus culture
15 Aug 09 |  UK Politics
Banks given new rules on bonuses
12 Aug 09 |  Business
Tories reveal bank reform plans
20 Jul 09 |  Business
Osborne would scrap 'failed' FSA
19 Jul 09 |  UK Politics
Banks to face tougher regulation
08 Jul 09 |  Business

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