Thursday, 2 December 2010

Government has increased the loss of investment banking jobs

As Barclays Capital announces that they will be laying off hundreds of staff, the government needs to take responsibility for this loss of jobs. By consistently calling for a reduction in bonuses the government has forced the banks to increase the base salaries of investment bankers in order to still be able to attract talented staff, particularly from banks not subject to the UK governments regulations. By having a higher base cost of having the staff, when volumes of business drop, even for a short period, executives of investment banks, in order to meet shareholder demands for profits, lay off staff.

Prior to the government intervention on bonuses, investment bankers were paid a lower base with more of their total package based on performance. This meant that retaining staff during a lull in business was a more acceptable option because the salary bill was lower than it is today.

Being employed in the investment banking industry has always been risky, because of both the cyclical nature of the global economy and the volatility of markets, investment bankers have got used to expecting periods of time when they are either not earning a great deal or are unemployed. This is one of the reasons why their total compensation is higher than many other professions - there is higher risk and there is a need to save during the good times in anticipation of the inevitable bad times.

A basic lack of both an understanding and a lack of a desire to understand the cyclical nature of employment in investment banking has led to regulation being rushed in that is now resulting in both an increase in unemployment and the emigration of investment bankers. Ultimately that means a lot less income for the government in terms of both direct and indirect taxation, which, in turn, will lead to a lower rate of growth in the economy and more bankers being laid off. There is a greater need now than ever before for that over-used expression 'joined up thinking'.

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