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Should bank bonuses should reflect lending performance?

Should bank bonuses should reflect lending performance?

Project Merlin, the project launched last year to secure consensus amongst the leading UK banks regarding financial issues including lending to small businesses and bonuses, is likely to lose the support of Spanish banking giant Santander.

It has been reported that Santander is eager to reach a unilateral agreement over lending directly with the Treasury. It is thought that the bank does not consider Project Merlin as relevant to it since it is currently aggressively increasing the amount it lends.

Santander becomes the second bank to leave the Project after Standard Chartered’s decision last November. Like Santander, Standard Chartered believes Project Merlin is not relevant to it.

The question of bonuses was raised in the Commons question time last week as MPS complained that banks were not lending to struggling SMEs.

Conservative MP, Philip Hollobone, told Vince Cable that a businessman claimed to have been ordered by Barclays Bank to pay a yearly fee of £25,000 because of “spurious new audit requirements”. Barclays lied to the man and the chief executive should not be awarded with a bonus, Hollobone said.

In reply, Cable said that it would be helpful if bonuses reflected performance in lending. But that’s exactly why George Osborne and I are discussing ways of ensuring that the UK’s excellent enterprises have access to a proper flow of credit, he added.

The government began talks with the banks on acceptable bonus levels before Christmas but there are increasing concerns that mammoth bonuses are set to return now that the recession is over.

John Denham, the shadow business secretary, accused the coalition of giving in to the banks. He pointed out that SMEs and limited company contractors are still struggling to obtain credit and even if they do get it, it is too expensive. He asked why taxation on banks is being cut when the chief executive of Lloyds is reported to be receiving £2 million after leaving his position.

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Image: y2.d56 | fml. by B Rosen

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