BBC journalist Robert Peston's Will banks' medicine kill them (and us?) notes a link to the Bank of England report The resilience of UK banks which contains the troubling chart copied below.
Huh? Salaries on a steady and quite rapid rise as a percentage of revenue? It seems that UK bankers - the people not the institution - are avoiding the financial pain imposed upon the rest of the public from the crisis. The bankers, the individuals, the people at the banks who made the monumental errors of judgment, or who perhaps in some cases deliberately ignored the risks they took because it was a no-lose situation for them personally, are not suffering. They continue to power ahead, siphoning off an ever greater share of bank revenue.
It appears that it is much the same with US banks - this January 2010, NY Times story Ailing Banks Favor Salaries Over Shareholders finds the same pattern with a number of the major US banks.
Meantime, Canada's biggest bank RBC paid out 35% of revenue in 2007 on staff costs but only 31% in 2009. Without knowing exhaustively whether this pattern holds true for all Canadian banks over more years, one wonders if a reason Canadian banks fared so much better than UK and US banks also had something to do with bank "culture" where employees and managers think of themselves differently and act accordingly.
Unfortunately, the financial system reforms (bank taxes and increased capital requirements) the G20 / 8 countries are looking at seem unlikely to influence a change in the self-enriching, risk-taking behaviour of bankers in the UK and the USA. If the individuals don't get hammered when they screw up, why would they change their way of doing things? There is a great ad byline from Dofasco that goes "our product is steel, our strength is people." Sadly, for many banks, that thought instead is, "our product is lending, our weakness is people".
Monday, 28 June 2010
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