The European union seems to have sobered up. After years of outright gluttony in the financial sector, the union has decided that the party must come to an end: banking bonuses have been capped.
To some this might signal a return to a less capitalistic trend, but what is at stake is the re-ordering of a system that has been literally derailed by the greed of some individuals in the sector.
Giving large or very large packages as bonuses to their banking managers and ceos has resulted in banks being steered toward practices that favor income gathering for the banking managers, rather than practices that stabilize and capitalize the banks themselves.
Many in fact blame such prior practices for the woes that have befallen the European community.
photo: onlinewsj.com
Unfortunately such decision does not cover banks in the US or other communities. In effect the effort by the US government to reduce bank size and avoid the 'to big to fail' problem, which prompted a much criticized bailout in 2008, has not been nearly as effective as its proponents declared.
In fact, the new regulations put in place in the US to curb mergers and the expansion of already large banking enterprises only require that banks have better capitalization. This however does not preclude that a bank become bigger or merge with another. All the bank has to do, in effect, is keep its capitalization at the level prescribed by the new regulation, but it does in any way impede it from becoming bigger and more difficult to dismiss. In effect, some banks have merged since the regulations have been put in place, prompting many to see such mergers as a defensive measure, in effect, becoming even more 'too big too fail' and therefore become more eligible for the protection afforded by the Federal Deposit protection program.
Partially sourced: France 24/ 2.26.13
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