01 Jul 2009, David Benyon, Operational Risk & Regulation
LONDON - Group chairman of HSBC Stephen Green has spoken of the "greedy and short-termist" nature of financial compensation packages as one of the causes of the economic crisis.
Green, who is also chairman of the British Bankers' Association (BBA), was addressing the BBA's annual conference with a speech entitled 'Restoring governance and trust'.
Speaking of the causes behind the crisis, he said: "We all know that these are complex, be they global macroeconomic imbalances, loose credit conditions, dangerous over-trading in parts of the financial sector, over-clever risk management, pro-cyclical capital regimes and accounting standards, and compensation structures that have all too often been greedy and short-termist."
He said: "The perception that some have taken pay and bonuses in vast multiples of the remuneration of ordinary hard-working and socially valuable people - for indulging in an alchemy that has blown up in their faces and required huge bail-outs at prodigious cost to the taxpayer - has ignited fury around the world."
The rest of the speech focused on the question of how to restore trust, admitting that the public perception of bankers is now at its lowest point for decades, and that a reappraisal of banking's raison d'être is necessary, which Green described as "to provide financial services on a sustainably profitable basis to our customers".
"Trust has three core components," he said, "First, relationships, because the outcomes of relationships affect human beings and require human beings to deal with each other; second, confidence, because it is confidence that enables us to risk entering into relationships; and third, values, because they are essential to making those relationships constructive and sustainable."
For a more in-depth look at the role of behavioural economics, rather than conventional, transactional approaches, in financial compensation reform, see the feature 'What lies beneath' in the July magazine issue of OpRisk & Compliance.
To read Green's speech at the BBA in full, click here.
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