Don’t bank on a bonus

There is no set of results a bank could have declared this week which would have pleased the general public. A bank which made losses was inevitably going to be accused of continuing incompetence, while one which made profits was sure to be condemned for its greed. As John Varley, chief executive of Barclays, hinted on the Today programme on Monday, the dastardliness of public opinion should not obscure the fact that profitable banks — his made £2.99 billion in the first half of 2009 — are preferable to unprofitable ones. Anyone with savings in Barclays — not to mention anyone with any shareholdings — ought to be pleased that bankers are managing to earn their keep again. It makes a repeat of last autumn’s banking crisis less likely, with the economic collapse which would accompany it.

That said, this is no time for bankers to feel smug. And Mr Varley trod dangerously close to smugness by asserting that his bank could pay whatever bonuses it fancied because it had avoided being bailed out with taxpayers’ cash. This is not true. Barclays has taken advantage of the Bank of England’s efforts to pump liquidity into the banking system and had a £22 billion bond issue underwritten by the taxpayer. More important still, it benefited from an implicit guarantee that the government would not allow any large financial institution to go bust. Had the government not bailed out the Royal Bank of Scotland and Lloyds-HBOS, there might well have been a progressive collapse of the banking system that would have taken Barclays and Mr Varley with it.

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To pretend otherwise is politically foolish when taxpayers are still footing the bill for the banking collapse. When and if the partially nationalised banks are returned to the private sector — and on the condition that taxpayers have made a profit on the venture — then bankers may be freer to pay bumper salaries and bonuses.