February promises to be an uncomfortable month both for David Cameron and bankers at Royal Bank of Scotland. This year’s bonus season comes as the state-controlled bank is due to pay more than £500m in fines to US and UK regulators for rigging Libor. So it is encouraging that both the government and RBS are taking steps not only to claw back past payouts from those touched by the scandal, but to shrink the bonus pool itself.
Last year the government failed to recognise the extent of public resentment that still simmered over banking pay. Though it had signed off on a bonus of almost £1m to Stephen Hester, the chief executive brought in after the state’s £45bn rescue, it subsequently pressed him to surrender the payout in the face of political controversy. This time Mr Cameron and George Osborne, his chancellor, should ensure that any bonuses the bank pays are transparent, reasonable and justified. And then they should have the courage to defend these payouts to the public.
The hard truth is that as long as RBS has an investment banking arm it will have to pay bonuses to attract and retain competent staff. RBS is not big enough, and certainly not yet successful enough, to change such industry practice on its own.