Unreasonable bankers

Is it too much to expect a modicum of reasonableness in bankers?

FT has analysed the share of bankers' pay in relation to profits at the top 13 international banks. One would have thought that, in this adverse environment, banks would respond by reducing rewards to bankers so that shareholders' returns are protected? But no! Bankers' rewards have increased while that of shareholders has fallen.

Here are facts in the FT story:

• staff costs accounted for more than 81 per cent of the total (of staff costs and net profits), compared with a pre-crisis tally of 58 per cent
•  Dividends are came down to 4.5% of the pot compared to 15% earlier
• In the period under consideration, banks' share prices slumped nearly 60%

After the sub-prime crisis, the focus has been on the design of compensation, how to ensure that compensation schemes, such as stock options, do not increase firm- and systemic risks. It is becoming clear now that this will not suffice. The absolute levels of pay have to be tackled because bankers seem to think that banks exist for themselves first, next for shareholders. This would have been an egregious position to take at any time; it is more so when banks have had to be  helped out with taxpayers' money. (Caveat: One to examine whether some problems are distorting the overall results or whether the trends indicated above are common to most banks).

This is not a situation that can be remedied by market forces'. The fact that such distortions exist points to the absence of adequate competition and also to a failure of governance. Time for the regulators to step in and check pay excesses in banking.