Former central banker Paul Tucker is the chair of the Systemic Risk Council, a Fellow at the Harvard Kennedy School, and author of Unelected Power: The Quest for Legitimacy in Central Banking and the Regulatory State. 


Ex-Bank of England deputy governor says ‘pay top bankers in bonds’

By  Samuel Agini

Sir Paul Tucker, former deputy governor at the Bank of England, says City bosses should be paid in bonds that become worthless if their institutions fail to avoid a repeat of the Lehman Brothers crash.

Tucker, who now chairs the Systemic Risk Council, told an audience in London on Friday that one of the unsolved problems from the global financial crisis of 2008 was how best to incentivise bankers to act in the interests of the general public.

“I wish the top bankers and people like that were paid not in equity and dollar notes but in bonds whose value goes to zero if they fail,” Tucker said. “The big, big challenge … the problem that hasn’t been solved is one of incentives. This problem is really deep.”

The economist’s remarks were delivered during a panel debate moderated by Francesco Guerrera, head of Europe, the Middle East and Africa for Dow Jones Media Group and publisher of Financial News.

Hosted in partnership with the National Theatre, which is running a sold-out play about the rise and fall of Lehman Brothers, the panel discussed the effects of the crisis that followed the bank’s collapse in September 2008 and what the future holds.

Although Lehman was allowed to fail, a number of other huge financial groups in the US and Europe — including Royal Bank of Scotland and Lloyds Banking Group in the UK — were rescued with the use of taxpayer money.

Michael Tory, who was head of UK investment banking at Lehman at the time of its fall, told the audience that the same would likely happen in the event of another crash. “You’ve got to know that if we did come to another 2008-style event that the governments would intervene, it would not allow a collapse of the global economy, even though it’s more difficult for that to happen today,” he said.

Tory, who went on to found the independent investment bank Ondra Partners, added: “2008 was proof that in a life-threatening systemic crisis, the governments will intervene… you have vindication of the left critique of the capitalist system — that you have the socialisation of losses and the privatisation of gains. 2008 was a massive demonstration that when the system is threatened, that’s what happens.”

Tucker pointed to the unintended consequences of the stricter regulations that banks have faced since the crisis, namely that some activities traditionally performed by lenders have moved to the “perimeter” and are now conducted by firms including hedge funds, insurers and mutual funds.

Although Tucker said much had been done to ensure the system is better prepared to handle a future crisis, he said a regulatory approach of stepping in only when such firms are “big enough to be manifestly a threat to the stability of the system” was “doomed to fail”.

At such a point, he said, these firms would have developed such clout and “lobbying power”, particularly in the US, that they could delay a response or crackdown. “Money talks,” Tucker said.

Also on the panel was Ben Power, deputy director of the National Theatre and the adaptor of the Lehman Trilogy, a play currently showing at the NT.