Mervyn King is banging on about Banks preserving capital and using their bonus pools to store up cash for a rainy day (like when the Euro finally collapses - the only thing on my list for Father Christmas).
What a dumb idea.
As much as bonus bashing is de rigueur, bonuses are good for two reasons:
The first is 50% of bonuses are paid out in income tax plus the extra Employers National Insurance at 12% plus. The UK government needs all the tax it can get.
Secondly, bonuses paid to bankers are usually spent on something. The economy needs people to buy things.
Storing up bonuses on a bank's balance sheet is pointless. If these bonuses not paid out are treated as profit, corporation tax applied is less than income tax so the UK government receives less tax. Banks would however, most likely, net this bonus pool against bad debts so there would be no tax revenue and no expenditure - just a shuffling of the balance sheet as the Bank of England would like.
Growth is about demand. People buying things. Mervyn King is more obsessed about banks not being around. This is crazy. Banks should be allowed to fail. Stopping them from failing is worse than letting them fail. Bonuses are a good thing so let banks pay out huge bonuses because most of this money has been given to them by Mervyn King anyway (QE has just topped up bonus pools).
Banks should distribute as much as they can in bonuses. Big bonuses will save us all.
King is way out of line (telegraph)
USA = Unemployed States of Anarchy (marketwatch)
Euro is saved!!! (ft)
New Euro to be called the European Dollar.