Financial safety/The most effective stick

Despite the bailouts and regulation after the 2008 financial crisis, unethical behaviour at banks has cost shareholders close to US$10 billion over the past two years in the form of fines. No wonder there is fierce competition on both sides of the Atlantic, particularly now as banks are beginning to report their results, over diminishing bonus pools in the wake of these multi-billion dollar fines.

JP Morgan reported a 6.6 per cent drop in quarterly profits as legal costs exceeded US$1 billion in the wake of government probes prompting CEO Jamie Dimon to claim that banks were “under assault”. Citigroup decided that the bonus pool for traders would fall about five to 10 per cent after an earlier pledge to hold it flat.

The real debate, however, should be about what will stop bankers from behaving badly. Corporate fines are clearly not doing the trick and shareholders should not continue to foot the bill when bankers fail to learn the lessons of the past.

REDEFINING SUCCESS: INCENTIVES FOR CULTURAL CHANGE IN BANKS