Last week, Debating Europe attended the 10th Annual European Financial Services Conference in Brussels, an event organised by Forum Europe to bring together more than 400 senior bankers and policy-makers from around the world. We came to the event prepared with a couple of questions from our readers on the topic of banks being “too big to fail” and on the controversial issue of bankers’ bonuses.
First up, we had a comment submitted by Van Patten that was highly critical of the bail-outs:
If the government deems the banks ‘too big to fail’, surely it is little wonder that those banks engage in speculative behaviour knowing that if they find themselves short of funds, the government, or ultimately the taxpayer will bail them out?
In other words, by “privatising profits and socialising losses” for large financial institutions are we encouraging risky behaviour? We approached Olivier Guersent, the Head of Cabinet for Michel Barnier (the EU Commissioner responsible for financial services regulation) and asked him if “too big to fail” was just a reality we had to live with, or if there was something we could do about it.
Mr Guersent told us that this question was one of the reasons Commissioner Barnier asked Erkki Liikanen, Governer of the Bank of Finland and former member of the European Commission, to compile a report (due later this year) on possible ways to reform Europe’s banking sector. The second point Mr Guersent made was that he doesn’t think “too big to fail” is inevitable, and policies such as bail-ins (i.e. forcing banks to “recapitalise from within” using private money instead of public money) might help.
Also speaking at the event was Sharon Bowles, a UK Liberal Democrat Member of the European Parliament (MEP). She made the point that the financial crisis had actually made the situation worse, not better:
We do have some very big banks, and the crisis has only made them bigger, that’s the irony of it; the forced mergers have meant we now have more too-big-to-fail than we did before.
Finally, we had the chance to ask a couple of questions to each speaker on the controversial topic of bankers’ bonuses. We had a comment sent in by Panagiotis arguing that, if executives in bailed-out banks are “also [getting] big bonuses like the ones that have not been aided, [this] is totally unfair [and] people have to complain to banks’ new owners: their political leaders.“
We asked Mr Guersent whether there was a problem with excessive bonuses being paid in financial institutions receiving support from the public purse, and whether Commissioner Barnier had any plans on this front.
We also put the same question to Sharon Bowles. Is the issue of bankers’ pay something that Europeans should be angry about, or is this just a populist line? After all, financial services in Europe need to attract the best and brightest, and if we interfere with their pay they may take their skills elsewhere.
What do YOU think? Maybe we have to just accept that some banks will always be “too big to fail”? Or could the creation of “too big to fail” banks be avoided through “bail-ins” and strict separation of retail banks and “casino” investment banks? Do we need new regulations to control bankers’ bonuses in publicly-supported banks? Or should we let free markets decide how much an individual is paid? Let us know your thoughts in the form below, and we’ll take your comments to policy-makers and experts to hear their reactions.