Tuesday, 29 March 2011

US bank regulators criticised: 30 times more paid than engineers

By YVONNE TAN  yvonne@thestar.com.my

Top bankers earn more than shareholders in crisis time 




PETALING JAYA: An academician and top financial adviser has reiterated his criticism for regulators of the banking sector in the United States, saying that banks were the clear winners in the global financial crisis of 2008/09.“In the crisis year 2008, salaries of bankers from the top 10 banks rose to US$75bil from US$31bil in 1999 but cash dividends to shareholders amounted to only US$17.5bil,” Tan Sri Andrew Sheng Len Tao said.

Sheng, who is adjunct professor at the University of Malaya (UM) and Beijing's Tsinghua University as well as chief adviser to the China Banking Regulatory Commission, said based on this, banks' management took home 4.3 times more than shareholders, when in fact shareholders were the ones that had to inject capital and government guarantee deposits.

“If banks increase leverage, then they have more profits but assume greater risk. But they can take home larger shares of bonuses because profits would be rising,” he said.
“Essentially, financial sector losses would be paid for by future taxation, which would lead to large fiscal debt, devaluation or inflation, but agents are walking (off) with bonuses,” Sheng said in a talk held at UM last week.

Sheng, who appeared in the 2010 Oscar-winning documentary Inside Job, a narrative which traces how the global financial crisis started, pointed out during the talk that financial engineers at Wall Street were paid some 30 times more than engineers.

“Financial engineers build dreams but when those dreams turn out to be nightmares, the people pay for it,” he was quoted as saying by foreign press following the release of the documentary.

Touching on the area of global imbalance between the West and the East, Sheng said there were currently three imbalances that had to be worked on.

Simply put, these are current account imbalances with an apparent pattern of Europe being broadly in balance, the United States in deficit and Asia, in surplus; foreign exchange reserves imbalance with the Chinese, Japanese and the rest of Asian foreign reserves exceeding US$4 trillion, which is larger than the rest of official reserves collectively, as well as national savings rate imbalance where Asia clearly leads.

As far as an international currency is concerned, unless and until the world recognises a global fiscal policy with a global tax, an international currency cannot work, according to Sheng.