Economic crisis - Banks need sharp dose of reality

IT defies credulity that banks are preparing to give bonuses to senior managers at this time of financial crisis. Especially when Ireland’s two main banks are about to receive a massive recapitalisation bailout from the Government.

Amounting to a staggering €7 billion, the funding programme will receive cabinet approval tomorrow. However, before any endorsement is given, it behoves this government to remember where the money is coming from — the pockets of beleaguered taxpayers.

There should be no question of pouring billions into bank coffers without strict conditions, including a strict veto on all bonuses and a cap on the pay of senior managers. It is not good enough for Taoiseach Brian Cowen — who, thankfully, has finally refound his voice and reasserted his leadership — to baulk because banks claim they must fill contractual arrangements and leave it at that. It is high time the banks were given a sharp dose of reality.

In the continuing financial turmoil, the Taoiseach should emulate US President Barack Obama’s no-nonsense decision to link recapitalisation to a binding cap on the remuneration of managers.

Before any recapitalisation deal is signed off here, it is vital that Finance Minister Brian Lenihan impose a cap on pay and also that he should root out the bonus culture which continues to pervade the banking system.

It is equally crucial to insist that banks restore credit facilities for small and medium business enterprises haemorrhaging jobs at a frightening pace across the country. The stark reality is that while the banks are sitting tight on money, many companies have gone to the wall on being refused loans.

Jaundiced taxpayers witnessed a glaring example of cynicism with the rushed payout to managers in Anglo Irish Bank in advance of the state takeover of the bank where the behaviour of some managers was reckless and possibly criminal.

Further evidence of banker indifference to public opinion has emerged over the weekend at Royal Bank of Scotland (RBS), where thousands of staff are to get bonuses despite being bailed out with £20bn of British taxpayers’ money and despite Labour government pledges to crack down on City pay. It is unclear whether or not RBS-owned Ulster Bank will follow suit.

The Irish Government must accept blame for not building up exchequer reserves when the economy was awash with money. Given the gravity of the situation facing the country, it is essential to maintain the stability of the financial system.

If that means propping up the banks, so be it — but tough conditions must be attached.

With a global financial crisis and the Irish economy on its knees, the notion of giving bonuses or pay rises to senior bank managers is obscene.