London - British Prime Minister Gordon Brown said on Monday there must be "no rewards for failure" in Britain's banks as public anger mounts at reports that Royal Bank of Scotland is planning to pay £1bn worth of bonuses despite massive losses.
Brown's comments came as the Treasury appointed David Walker, a former regulator of Britain's financial services industry, to conduct a review into the bonus culture in the banking industry, which is blamed by many for the excessive risk-taking that brought the banks to near-ruin.
Speaking to an audience of economists in London, Brown promised that he would "sweep aside" the short-term bonus culture in banks and ensure that rewards are provided only for long-term sustainable success, with "penalties" for those who take irresponsible risks.
"We should not in any way condone, but should punish, irresponsible and excessive risk-taking," he said.
The focus of discontent has been on reports the Royal Bank of Scotland Group's plans to pay out £1bn worth of bonuses to staff even though the government owns a majority stake in the bank following an emergency £20bn cash injection.
Royal Bank of Scotland is due to report its 2008 results in three weeks. Last month, the bank said it is likely to post the biggest full-year loss in British corporate history of up to £28bn.
'Stop dithering and act'
Barclays, Britain's third largest bank by assets, said on Monday that it would not be paying any bonuses to executive directors but that certain staff would still be eligible.
It said its overall bonus payments for 2008 were down 48% year-on-year, even though it did not accept government cash last autumn and opted instead to shore up its finances from Middle Eastern investors.
The government's inquiry was slammed by the opposition parties, who claimed the government was kicking the issue into the long grass.
George Osborne, the Conservative Party's spokesperson on economic matters, said the review was a "totally inadequate" response.
"The problem of bonuses in the government-owned banks has been looming for months, but now they have set up another review that will be far too late to do anything about this year's bonuses," he said.
"They should stop dithering and act," he said.
And Liberal Democrat Treasury spokesperson Vince Cable said the review was "a classic British establishment response to appoint an insider to carry out a report which will be published many months into the future when the issue has lost its urgency."
Announcing the review, Darling indicated that some staff at banks bailed out by the taxpayer were likely to receive some bonuses but he insisted that "absolutely no figure" had been agreed with Royal Bank of Scotland.
But he accepted that a total ban on bonuses could not be agreed because of "contractual problems" and the right of staff other than those involved in "excessive risk-taking" to be rewarded.
UK Financial Investments (UKFI), the firm set up by Darling to oversee state investments in the banks, must approve any bonus package at RBS or other state-supported banks.
Royal Bank of Scotland's former chief executive Fred Goodwin - blamed by many for the bank's woes - will be quizzed on Tuesday by lawmakers from the Treasury Select Committee.
- Sapa