Cultural change in the financial industry is an oxymoron, according to many bank critics. But the way banks do business is beginning to change. The questions now is: are financial institutions mending their ways out of sincere contrition and a deep understanding of former faults? Or are governmental regulators behind the transformation?
Take Deutsche Bank, Germany’s largest bank. This summer, the bank’s supervisory board, headed by Paul Achleitner, decided that several current and former board members would have to do without bonuses they were scheduled to receive this year. The bank is facing several law suits, caused by the legal risks the bankers took. The bank wants to withhold payments until it knows the results of these cases.
After the financial crisis, regulators came to the justified conclusion that the old system of bonus payments encouraged bankers to take unreasonable risks by rewarding short-term success and disregarding long-term danger.
The European Union decided as a first step to limit the cash portion of the reward for top bankers to a maximum of 20 percent. The lion’s share of the bonus will be spread out over several years. Banks are also allowed to freeze or demand repayment of bonuses if, after they are given, new risks call into the question the gains that prompted them.
That’s what Deutsche Bank is doing right now. It was no easy step for the supervisory board: Who wants to annoy a company’s top managers, after all? But it is the right decision because Deutsche Bank itself contributed to the exorbitant bonuses. For example, its former currency trader Christian Bittar claimed bonuses totaling to more than €80 million, or about $100 million. But he is also suspected of manipulating foreign currency markets and benchmark interest rates in the Libor scandal that has swept up a number of other bank employees.
It might also be that Mr. Achleitner and his fellow supervisors are demonstrating their cleverness by freezing bank bonuses. Now, it seems, they can’t be accused of standing by and doing nothing. In case, investigators later on find out that top managers should have known something was wrong, they can argue, they have tried to react early on.
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