Bankers - a word of praise

I have been pretty harsh about some bankers in my recent posts. I feel I should explain my position before someone rants back at me.

There are a great many bankers out there who do an excellent job and provide a vital function within society (however like almost all walks of life there are also the lazy, stupid or otherwise useless ones as well).
The credit crunch was not caused by the majority who have diligently assessed the credit worthness of businesses and individuals alike and leant either responsibly or have been forced by market conditions to lend at the slightly riskier end.

Of course they are not responsible for the sanction - the credit committees and credit teams are. These committees base their decission, amongst other thing, on the policies set out by the management of those banks. If it looked too risky then it should have been declined
Many of these bankers would have been paid bonuses for the work they have done, however these bonuses would be a pecentage of their salary, not a multiple.

They incentivise them, but do not really encourage them to take decissions where they would feel the risk is potentially worth loosing their job for.

Not to mention that if they were taking excessive then the credit team should have batted it back with a stiff rebuke.

Bonuses should really not be based on the amount of profit the bankers make - that is really a function of the funds available

For example - Brian Bigballs - a flashy cristal drinking banker lent £1bn to companies making a return on shareholders funds of 10% (net of adjustments for risk) or £100m for which he gets a bonus of 2% - or £2m

Compare this to Harry Humble - a banker working in the country, lent £5m to customers in the year making a return on shareholders funds of 25% (net of adjustments for risk), or £1.25for which he too gets a bonus of 2% or £25k

Now suppose that Brian, being a big city banker gets paid handsomely for his work - a salary of £200k - his bonus is a massive 10x his salary

Harry on the other hand, he's earning a comfortable £50k, which means his bonus is only (I say only....!) 50% of his salary.

But who has really performed better? A 25% return on shareholders funds would appear to be a better performance than a 10% return.

Now I know this is a very very crude example - but the point I am making is that the amount of profit an individual banker makes is very closely related to the amount of capital they have access to Absolute profit is not the basis for a bonus as it ignores this factor

So - to the banker out there doing a good job - my criticisms are not really directed at you!