4 November 2009
City comments on RBS/Lloyds announcement
Commenting on today's (Tuesday 3 November) announcement that RBS
and Lloyds have agreed to sell branches and not pay any cash
bonuses to members of staff earning over £39,000 this year, the
Policy Chairman at the City of London Corporation Stuart Fraser
said:
"The announcement today that Royal Bank of Scotland (RBS) and
Lloyds Banking Group will sell off a combined total of around 1,000
branches is a welcome step towards restoring healthy competition in
the banking sector.
"These divestments, combined with last week's decision to
break-up Northern Rock, will help to provide greater consumer
choice especially if new players improve the supply of funds as the
government pulls back its support. In this light, the news that
both RBS and Lloyds will increase lending to businesses and
property owners is particularly welcome.
"However we must be careful that increased competition does not
lead to overly aggressive lending simply to gain market share. The
mistakes of the past – fuelled by excessive global liquidity - must
not be repeated again in the future. We need responsible lending
not lending simply to build size or to meet artificial targets.
Sound banking practices are at the heart of a successful
market-based economy.
"Of course, we need to restore public trust in the financial
system. Risks have to be better evaluated and priced appropriately.
But a broad brush approach that places arbitrary ceilings on
bonuses only tackles the symptoms rather than the cause of the
crisis.
"Cash bonuses provoke understandable public anger because they
have become synonymous with short-term risk-taking. But pay
structures that reflect the long-term profitability of banks are
essential to maintaining the City's ability to attract top talent.
This flexibility is also important domestically as banks and other
financial entities compete for the available talent. It would be
very short-sighted if shareholders, including the government, did
not take this into account when instructing management to adopt a
particular policy on remuneration. The only assets that financial
companies have is their employees.
"Policymakers should focus on improving transparency and risk
management through internationally coordinated reform, particularly
on regulation and remuneration, without compromising London's
status a world leading centre. We cannot afford to damage an
industry that will play a crucial role in driving the economic
recovery."
Ends
Notes for editors
About the City of London Corporation:
The City of London Corporation is a uniquely diverse organisation.
It supports and promotes the City as the world leader in
international finance and business services and provides local
services and policing for those working in, living in and visiting
the Square Mile. It also provides valued services to London and the
nation. These include the Barbican Centre and the Guildhall School
of Music & Drama; the Guildhall Library and Art Gallery and
London Metropolitan Archive; a range of education provision
(including three City Academies); five Thames bridges (including
Tower Bridge and the Millennium Bridge); the Central Criminal Court
at Old Bailey; over 10,000 acres of open spaces (including
Hampstead Heath and Epping Forest), and three wholesale food
markets. It is also London’s Port Health Authority and runs the
Animal Reception Centre at Heathrow. It works in partnership with
neighbouring boroughs on the regeneration of surrounding areas and
the City Bridge Trust, which it oversees, donates more than £15m to
charity annually.
Press enquiries
Sanjay Odedra
020 7332 1835
sanjay.odedra@cityoflondon.gov.uk