Prisoners of the banks’ management

From Dr Peter D. Hahn.

Sir, Jim Pickard (“Cameron accused over bank bonuses”, January 10) clearly summarises the coalition’s conflicts on British bank bonuses. However, he does not address the key reason the government finds itself in such a conundrum. Taxpayers are now in their third year of practical control of RBS (and other banks). Yet far from seeming the masters, taxpayers seem ever more the prisoners of management.

The prime minister said the government should not micromanage, but the already lengthy period of government ownership demands nothing else. If an 80 per cent shareholder and loss guarantor cannot influence pay policy after all this time, we should wonder whether shareholder ownership of banks is viable. But the issue is not about shareholders, it is about ownership strategy.

Taxpayers should legitimately wonder why, as a major critic and a major owner, the government has not promoted more change to the UK’s banking system to date. The obvious answer and conflict is the government’s desire to sell out its holdings at the highest possible price as soon as possible.

Indeed, this seems the true political debate – there is a price to banking reform or, more bluntly, RBS’ and others’ share prices could be at risk. Isn’t failing to execute good governance in the hope of short-term share gains, the frequent accusation made by the government about the market?

Our politicians need to accept the priority of exiting the banking system at speed; it will probably incur (or crystallise) a substantial loss but it will free their hands. Taxpayers didn’t take ownership of banks as an investment strategy and it is foolish to hold such a strategy now. Owning banks and criticising banks is only likely to make the government and taxpayers look more foolish and become more frustrated.

Peter D. Hahn,

Cass Business School,

London EC1, UK