Banks should defer bonus payouts for staff for as long as 10 years to improve 'prudence' in remuneration.
So said Andrew Haldane, executive director for financial stability at the Bank of England.
The current window is 'far too short to capture the cycle in credit. and a period of five to 10 years would be better, Haldane said at a hearing of the Parliamentary Commission on Banking Standards in London Monday. 'We had roughly a 20-year boom in the run-up to this crisis, so measuring performance only over a three or five-year window is far too short'.
Bloomberg reports that European regulators agreed on tougher bonus rules in 2011, including minimum three-year deferrals, blaming large cash payouts for encouraging the type of risk-taking that led to the 2008 collapse of Lehman Brothers Holdings Inc. and the subsequent financial crisis. Haldane, who is also a member of the Bank of England’s Financial Policy Committee, said there’s a case to lengthen that deferral period further.
'Progress has been made on remuneration codes internationally and domestically over the last three or four years', he said. 'But for my money, they still fall somewhat short of the standards of prudence I would wish to see embedded'.
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