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Banks will make significant losses not profits from coronavirus – UK Finance

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  • 15/04/2020
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Banks will make significant losses not profits from coronavirus – UK Finance
The banking industry is likely to see significant losses not big profits as a result of the coronavirus crisis, the head of UK Finance believes.

 

The trade body also argued that the banking sector had undergone a significant overhaul of its pay and bonuses strategies since the credit crisis meaning frontline staff would be the ones rewarded, not senior managers.

Giving evidence to the Treasury Select Committee of MPs, UK Finance CEO Stephen Jones suggested the outlays, loan forbearance and other actions taken by banks would far outstrip any profit made from additional interest gained through mortgage payment holidays.

In response to estimates that banks could earn hundreds of millions in extra interest, Julie Marson, Conservative MP for Hertford and Stortford, asked if banks would profit from payment holidays and if they morally should.

“I think net, with the forbearance measures that are being taken, with the extension of risk appetite to the absolute limit and the kind of scenarios that the Office for Budget Responsibility is painting for economic contraction, I find that very hard to believe that the banks will profit from this crisis,” Jones said.

“I think it’s a question of how significant will the losses be?”

He also credited fast action by regulators to release capital buffers, and making clear they were there “to be used to support the economy in time of crisis in order that the maximum amount of lending can be deployed by banks in the circumstances”.

 

Right combination of incentives

Steven Baker, Conservative MP for Wycombe, also pushed Jones on whether big bosses at senior figures at banks would be receiving high pay and other bonuses from the current situation.

Jones noted that remuneration for senior staff has changed substantially and with much of it deferred with the right for clawback if it turns out the wrong thing has happened on that senior manager’s watch.

He also emphasised communication with the Bank of England which expressly blocked cash bonuses from 2020 for any senior managers or material risk takers, but that frontline staff can and should have the ability to receive cash bonuses this year for doing the right thing.

“I hope that combination of forbearance at the top and the ability to pay cash bonuses to the staff who are out there in the frontline creates the right combination of incentives that you are referring to,” Jones concluded.

 

 

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