The bank bonus debate risks missing the key point

Goldman Sachs in the UK is limiting pay and bonuses to £1 million pounds each for its UK partners.

Others in the company will earn more, much more. The idea is that senior management shows leadership.

This means they will earn a lot less than counterparts elsewhere for the banks success in 2009.

The shift is a response to both the UK Government’s call for restraint, and perhaps spurred on by the plans announced last month to tax bonuses at 50% over £25,000.

The company will pay hundreds of millions in tax in a one-off UK tax too, according to the BBC.

All this debate about bonuses is of course, right and proper.

But it does risk BECOMING the debate, when systemic issues around how banks are regulated are much more important.

I still am not sure what to think about the size of banks and the discussion about whether their size should be limited.

Much as it would be nice to dream of a time when we return to smaller, local banks, with limited market powers, I fear it may be too late for that.

A connected and competitive world may indeed need big global banks to cope with the challenges ahead for providing finance.

Some of the world’s biggest banks are Chinese, for example, and it’s unlikely they will be persuaded by the ‘small is beautiful’ idea.

I’m still finishing “Fool’s Gold” by Gillian Tett of the FT, so hoping to become slightly better informed after trying to absorb it all.

But the risk of focusing all the time in the media on bonuses, is that we seem to have forgotten that the real issue is how banks are capitalised, regulated, incentivised and managed.

That’s where focus is needed. As Gillian Tett points out in “Fool’s Gold”, pre-2008 many big banks were selling products their management did not understand. The ones that are left standing alone appear to be the ones which did, at least to some degree, understand risk.

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