Britain's banks need radical reform to end a culture of paying "offensively" large bonuses, Business Secretary Vince Cable, a long-time critic of the banking sector, said on Sunday. The Conservative-Liberal Democrat coalition finalised a deal this week with banks to curb bonuses and boost lending to business but critics have said it will be hard to enforce.
Cable, a senior Liberal Democrat, told BBC television the deal was "by no means a finished article". "The banks are ultimately underwritten by the state. They effectively have a state guarantee and that's what makes the enormous (bonus) payments so offensive ... there will have to be change and it will have to be radical," he said.
Bank bonuses have become a sensitive political issue in Britain since the government was forced to use taxpayer cash to bail out Lloyds and RBS and prop up the banking system during the credit crisis.
A government-appointed Independent Commission on Banking (ICB) is looking at what reforms should be made to the sector "to promote financial stability and competition" and is due to report back later this year.
The commission's chairman John Vickers has said he is unlikely to recommend a formal break-up of the top lenders, but Cable said fundamental reform was needed. "What we should notice at the end of it is that banks are more competitive and that they're safer and that they're not making large excess profits which then fuel the bonus culture."
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