Bank Bonuses, Dividends Impact The Economy

Source: Bank of England

Banks were recently warned by the Bank of England to cut bonuses and dividends ("discretionary distributions"), rather than to reduce lending, when faced with falling profits.

Interestingly, Angela Knight, chief executive of the British Bankers Association, welcomed the news. She is reported to have said, "This is the first statement I’ve seen from [UK] authorities that recognises that capital levels and regulatory changes ... can have an adverse impact on the economy.”

By implication, of course, this is also the first acknowledgement from UK banks that their bonuses and dividends will adversely impact on the economy, unless they are cut before lending shrinks.

Let's hope they continue to bear this in mind as their rate of lending continues to shrink...