The culture of banking executives bringing home big salaries and bonuses while taking excessive risks with investors money may be a thing of the past if the APRA’s chairman John Laker gets his way.
In a speech today in Melbourne, the chairman the Australian Prudential Regulation Authority has made clear that the current system of taxpayers picking up the bill when bankers risky deals turn bad cannot continue.
“A banking system shouldn’t be built on the premise that management and shareholders get rewarded on the upside and if the risk materialises as feared, the taxpayer cops the penalty on the downside,” he said.
“One of the things that policy makers need to look at are the set of incentives that are built in for management and shareholders,” he said.
“If you do really well and you bet the bank in the short term, you get rewarded fabulously. But if you get the bet wrong, you should be punished and there should be a genuine focus on clawback and balancing risk and reward.”
Mr Laker warns that while Australia’s banking system has done well despite the effects of the GFC, now is the time to act to ensure the lessons of 2008 and 2009 are not forgotten as the global economy improves.
Hans Hoogervorst a regulator with the Financial Markets Authority in the Netherlands provided a stark warning of what Australia may face should bankers salaries remain unchecked and the Australian Government have to bail out the banks in future.
“There has been a horrible failure of the financial economic elite in the world and also of many politicians,” he said. “People are not crazy. They cannot accept that the people that caused this crisis have hardly paid the price.
“I mean, we are in a terrible mess. Fantastic. We need at least a decade to pick it apart,” Mr Hoogervorst said.