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Opinion

Renumeration: A dangerous obsession

If regulators want to fix bankers’ pay, then pushing fair-value accounting is not the answer.

No one outside the banking industry itself – precious few inside it even – can stomach how much investment bankers and traders get paid. It’s the topic that simply won’t go away. Credit Suisse has made a bigger effort than most to incorporate all the latest best practice principles on pay – linking it to the bank’s medium-term return on equity, ensuring payouts are deferred and subject to claw-back if divisions turn loss-making.

But no one outside the industry cares about this stuff. They don’t care about the percentage of revenues that banks accrue for comp each quarter. It’s the absolute numbers that provoke disgust, outrage and disbelief. All three emotions were predictably vented last month when news broke that Credit Suisse had granted big cash bonuses to London-based staff whose pay had been cut by the UK government’s windfall tax on their bonuses in April.

It’s worth asking just how far this outrage and disgust with pay, stoked by politicians keen to pin all the blame for unemployment on the banks and encouraged by central bankers and regulators eager to deflect attention from their own failures, drives the process of banking re-regulation.

Bankers see almost every proposed regulation as a drag on profits and returns, taking the industry to the point where it might no longer be able to promise a return on equity above its cost of equity.

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