A banking bonus

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THERE will be no shortage of people cheering on the European Union over its clampdown on bankers’ bonuses. For it is a sign of the times that bankers are one of the few sections of society that would lose a popularity contest with Brussels.

The reason why Britain is so incensed at the EU’s cap on bonuses, however, is that a proper system of financial regulation, such as that which the Government is trying to introduce, ensures that bonuses only reward good performance and are not paid out even when bankers seem to be doing their level best to bring down the economy, as happened in the financial crash of six years ago. And the actions of the EU will only incentivise bad performance as banks increase salaries to compensate for limited bonuses, meaning that bankers get much the same reward regardless of whether or not they do a good job.

This is why the Government, as principal owner of the Royal Bank of Scotland, has to ensure – if the EU will let it – that its bonus system is structured so as to reward its recovery from near collapse and does not operate regardless of the fact that its losses are still growing.

It is reassuring, however, that the Prime Minister has reminded chief executive Stephen Hester that it is a long road back to privatisation. Britain’s taxpayers have expended vast amounts of money on rescuing RBS and the very least they deserve is to make a fat profit by waiting until the bank is in the very rudest of health before putting it on the market.