City survivors are helped by reduced competition
Many of my colleagues in the financial services industry, particularly those working in sectors that had little or nothing to do with the financial crisis, feel they have been unfairly castigated.
Of course parts of the financial services industry fully deserve the approbation that has been heaped upon them but the majority do not. It is easier to focus on a single issue, such as bonuses, than it is to look at the major failings elsewhere. It was failings in risk modelling, credit ratings, macro economic management and regulatory oversight and other contributing factors that created conditions in which excessive profits were made. Huge bonuses are the end product of a dysfunctional financial system, not the underlying cause.
The current row is somewhat different in that exceptional profits are being made as a direct result of monetary policy. This is deliberately expansionist to offset the still real threat of an economic depression or a “double dip”. The survivors of this crisis, who have repaid government assistance, are reaping the benefits of a reduction in competition.
If it were not for the bail out of the system, leaving a huge hole in public finances, these survivors might not have survived and would not be making the profits they are today. Taxpayers are fully justified in feeling angry that some of these institutions do not see the game has changed.
It is difficult in a world of intense competition and a shortage of talent for companies to tell their staff that a degree of forbearance on pay may be in their interests in the longer term. I remain very concerned that pandering to short-term self interest will inevitably bring down on the industry a raft of new regulation designed more to punish than anything else.
Of course high remuneration, be it in salary or bonus is not such an emotive issue outside of Europe. So the threat to London is that we get a much more restrictive regulatory regime in Europe that is likely to lead to an exodus of companies and talent.
We must recognise that Regulation and Tax policies have to take account of those prevailing in other countries that pose a real competitive threat.
But London must always have a regulatory environment that gives confidence to both domestic and overseas investors.
Our reputation has been tarnished and we must eliminate those practices that have contributed to the current situation. Integrity and probity need to be restated as the bedrock of what we do in London if we are to prosper in the future.
Stuart Fraser is policy chairman of Canada Corporation