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RBS bankers must pay Libor fine, says George Osborne RBS bankers must pay Libor fine, says George Osborne
(about 5 hours later)
George Osborne declared on Monday he had instructed Royal Bank of Scotland to ensure its bankers pick up the cost of the upcoming multimillion-pound fine for Libor rigging, rather than taxpayers. George Osborne is forcing Royal Bank of Scotland to cut its bankers' pay to ensure that taxpayers are not left to pick up the cost of the upcoming multimillion-pound fine for Libor rigging.
The chancellor said this would defuse public anger about the portion of the fine – which could amount to £500m in total – that will be paid to the US authorities as he gave his support to the RBS boss Stephen Hester. The chancellor said his views had been made clear to the management of the bailed out bank in an attempt to defuse public anger about the portion of the fine – which could amount to between £400m to £500m in total – that will be paid to the US authorities.
However, Osborne indicated other heads would roll as the bank made changes to its management in the wake of the Libor fine which could be announced in the coming days. "When it comes to RBS, I am clear that the bill for any US fine related to this investigation should on this occasion be paid for by the bankers, and not the taxpayer," Osborne said.
He was speaking in Bournemouth to outline threats to break up banks if they did not comply with new rules and to pledge to make it easier for customers to move their accounts. Speaking in Bournemouth where he unveiled plans to reform the banking system, Osborne appeared to give his backing to the RBS chief executive, Stephen Hester, but indicated that he expects heads to roll as a result of the fine for rigging Libor - a key interest rate. It was "well known" that RBS was considering management changes, Osborne said.
Responding to questions about why bankers should receive bonuses after a year of scandal, Osborne acknowledged that Hester and Barclays boss Antony Jenkins had already waived their bonuses. The fine from the UK's Financial Services Authority is thought to be just under £90m with US regulators levying fines of around four times that amount. In the furore that followed the £290m Libor fine paid by Barclays last year, some £59.5m of which was levied by the FSA, the law was changed to ensure that fines went to the government. "Those who were doing the supervising must also bear their share of the responsibility," Osborne said. "The RBS board and the RBS senior management are well aware of that and decisions are in hand." He added that Hester is "taking the action to ensure those responsible are held to account".
It is expected that the departure of John Hourican, the head of the investment bank, will be announced once the Libor fine is revealed, possibly later this week, although he is not thought to be personally implicated in the rigging of Libor. The size of the bonus pool for 2012 at RBS is yet to be disclosed. It was £390m for 2011 and is expected to fall by as much as £150m. But the call by the chancellor to ensure bankers pay for the Libor fine does not preclude bonuses being paid for 2012.
Responding to questions about why senior bankers should receive bonuses after a year of scandal, Osborne acknowledged that Hester and Barclays boss Antony Jenkins have waived their bonuses.
He said there could have been "enormous public anger" if fines levied on RBS by US regulators were paid by taxpayers not the bankers.He said there could have been "enormous public anger" if fines levied on RBS by US regulators were paid by taxpayers not the bankers.
"That is not on," said Osborne who said he has told the bank management that the fine to international regulators should be paid out of the bonus pool. "That is not on," said Osborne who has told the bank management that a fine imposed by international regulators should be paid out of bankers' pay. If the fine is paid by shareholders, led by taxpayers who own 83%of the bank, "that could have been a very great source of public anger this spring," said Osborne.
Around four-fifths of the fine is likely to go US regulators. The UK fine will go to UK taxpayers. The chancellor confirmed remarks by Treasury sources over the weekend which had suggested that he was concerned about the way the Libor fine would be paid. In his Bournemouth speech Osborne insisted that "everyone should exercise restraint and responsibility" over bonuses.
"That could have been a very great source of public anger this spring," said Osborne. But Osborne was accused of "rhetoric" and a "partial climbdown" by Ed Balls, the shadow chancellor, after the chancellor said he would use legislation to threaten banks with a break up if they attempted to flout rules requiring them to ringfence their high street and investment banking arms.
The fine for Libor rigging could be announced in the coming days but the bonus pool is unlikely to big enough to cover the fine. Bonuses are likely to be clawed back and bonuses in the future will also be smaller. Andrew Tyrie, the Conservative MP whose banking standards commission helped create the idea of "electrifying" the ring fence, said the chancellor had taken an "important step in the right direction". The ring fence was a key plank of the proposals by Sir John Vickers' independent commission on banking but the banking standards commission had been concerned banks would try to "game" the ring fence. " They will always try to do so unless strong disincentives are put in place," said Tyrie.
Referring to suggestions that John Hourican, the head of the investment bank, will resign Osborne said: "We'll see what these decisions are." Treasury minister Clark was forced to address MPs after an urgent question on banks tabled by Labour after Osborne's speech. The shadow Treasury minister, Chris Leslie, said Osborne had "fudged the tough stance" recommended by the Vickers.
He said Hester is "taking the action to ensure those responsible are held to account".
In his speech on banking reform Osborne said he would make it easier to move bank accounts through changes to the behind the scenes plumbing in the financial system.
"From September this year every customer of every bank in Britain will be able to switch their bank account from their existing bank to another one in seven days. All they will have to do is sign up to a new bank – and the rest will follow," said Osborne, building on the proposals in the Vickers reform on banking. "All the direct debits, the standing orders, everything will be switched for you with no hassle," he added.
He has not required banks to make accounts portable but instead accepted measures from the banks to make it easier to move bank accounts.
As he promised to channel anger towards banks into "change, to build a banking system that works for us all", he said that the plumbing in the system would be opened up so that new banks did not have to rely on existing banks to be able to move money around the system.
"Asking your rival to provide you with the essential services you need at a reasonable price is not a recipe for success. And in other walks of life, like telecoms, we don't operate like that," he said.
"I want new faces on the high street. I want upstart challengers offering new and better services that shake up the established players," he said.