For more crisp and insightful business and economic news, subscribe to
The Daily Upside newsletter.
It’s completely free and we guarantee you’ll learn something new every day.
Greed is good again in the UK.
The UK’s Financial Conduct Authority said Tuesday that it’s ending a cap on bonuses for bankers that’s been in place since 2014. The cap was originally an EU rule that Britain held onto post-Brexit and born out of the economic rubble of the 2008 financial crisis.
As Their Affluence Expands…
Exactly one year ago, UK Prime Minister Liz Truss resigned her post following a disastrous few weeks during which her government’s “mini-budget” sent the UK economy into a tailspin. Moody’s only just reversed its negative outlook on the country a few days ago, saying that its decision to upgrade the UK was partly due to Chancellor Jeremy Hunt abandoning Truss-era policies. However, eradicating the cap on banker bonuses is the only policy to make it out of Truss’ premiership alive.
The UK government is touting the decision as a way to reinvigorate its financial sector. The Bank of England’s Prudential Regulation Authority (PRA) said Tuesday that outside of the EU bankers rarely have their bonuses capped:
- The 2014 rule capped bankers’ bonuses at twice their base salary. The FCA and PRA argued in a joint statement that this meant UK banks raised base pay to stay competitive, meaning that in leaner years they were less able to cut costs.
- Across the pond, bonuses have been in for some haircuts over the past nine months. Wall Street banks cut bonuses by as much as 30% at the end of last year, and compensation consultant Johnson Associates predicted in August that M&A investment bankers could expect a 20%-25% drop in bonuses.
A Silver Lining: The 2008 crisis led the UK government to nationalize the Bradford & Bingley and Northern Rock banks. While that may have been a deeply embarrassing moment for all concerned at the time, now the UK Treasury is lined up to net a £100 million surplus from the banks’ pension schemes, sources told the Financial Times.
