Financial doom and gloom…

It’s been a pretty arduous couple of days for the financial sectors in the UK and America this week. Criticisms regarding bonuses, profits and salaries have been flowing thick and fast, once again a great deal of anger has been directed at corporate banks on both sides of the pond. Over in the states the Dow Jones hit 10,000, the highest it’s been since October 2008. As well as the stock market rallying, the majority of America’s major banks reported huge profits for the third quarter, Goldman Sachs is believed to have a bonus pot worth an estimate £10bn. Similarly, banks on this side of the pond came under fire when it was announced that RBS, a heavily state funded bank, is due to pay out over £2bn in bonuses this year. The Chancellor, Alistair Darling, and the Governor of the Bank of England, Mervyn King, attacked the financial sector this week criticising the UK’s adherence to the bonus culture even amongst the height of a recession. During a speech in Edinburgh Mervyn King also suggested that big banks should be broken up into retail and investment sections to prevent risky ventures jeopardising the security of banks, savers and their savings accounts.

In other financial news the FOS (Financial Ombudsman) has criticised banks for not doing enough to help those who have applied for hardship claims regarding the return of overdraft fees. According to the FSA over 178,000 people have applied for hardship but only 53,000 have been accepted. This week the FSA have also vowed to crack down on bonuses from banks who have received heavy financial support from the state and taxpayers. The FSA is continuing to campaign to force banks to pump profits into securing capital, rather than releasing it to employers in the form of bonuses. The FSA have suggested a series of measures suggesting that proprietary trading and other risky activities should hold more capital, banks should boost their liquidity, special capital charges should be placed on global financial institutions, but reduced if they operate as national entities and investment banks that have made bumper profits should direct cash to increasing capital rather than paying bonuses. All of these measure are intended to promote a culture of savings, rather than a culture of bonuses and reckless betting which brought the present system to its knees.