Exodus Of Bankers Is A ‘Price Worth Paying’

(Guardian) – A SENIOR BANK OF ENGLAND OFFICIAL says that bankers moving overseas to avoid the bonus super tax could be a price worth paying to achieve lasting reform of the sector.

Andy Haldane, the bank’s head of financial stability, also said that banks had become too big and was sharply critical of a culture where bankers could take huge risks in the knowledge that the taxpayer would bail them out.

In an interview with the BBC World Service, Haldane said: “Some of the downsides of carrying around a big financial system are now evident to all.

“If some of that were to migrate overseas that would be unfortunate but given the costs of carrying that financial system around, it may be a price worth paying.”

His comments underline the gulf between Threadneedle Street and the City over how to deal with the fallout from the financial crisis.

In the Bank’s financial stability report published today, officials stepped into the row over bonuses by calling for banks to build up their capital rather than making large payments to staff as many are expected to do despite the sector being bailed out by the taxpayer.

Earlier this year the governor, Mervyn King, suggested that the largest banks should be split in two in order to separate the retail part from the high risk investment bank divisions.

Haldane said that the effort to reform the City should not be delayed.

“It’s true that the lobbying effort of the financial sector should not be under-estimated. Equally, the way to beat that back is by appealing to logic and to evidence.

Disputing the argument used by bankers that they need to be big to compete globally, he said: “There is not so much as a scintilla of evidence of bigger being better in banking …. A lot of the noise around that really is rhetoric,” he said.

“So in most industries we do think that bigger and wider delivers a better product for the end user. I think in banking the evidence on that is close to non-existent.”

“And we do know at the same time that bigger certainly isn’t better when the going gets tough. Bigger during this crisis has meant bigger bailouts not better bailouts.”

Haldane also spoke about what he described as a “Doom Loop” where banks take risks knowing that the state would bail out the sector because it was too important to be allowed to fail.

“It’s a loop we’ve been round repeatedly over the last 200 years which is that every time we have one of these events, the public sector has ridden to the rescue, it has written the cheque.

“And that has rather fortified the financial sector to double their bets for next time which means that when next time comes the cheque needs to be that much bigger … It will be a long-run battle.”