On 13 October, implementing the measures announced on 8 October, the Chancellor announced that the Government would be underwriting capital investments for Royal Bank of Scotland and, on successful merger, for HBOS and Lloyds TSB.
UK Financial Investments Ltd. (UKFI), which is wholly owned by the Government, will oversee the conditions attached to subscribing to the Government’s recapitalisation fund, including in relation to remuneration policies. UKFI will work to ensure management incentivisation based on long-term value maximization, which attracts and retains high quality management and which minimizes the potential for rewarding failure.
Northern Rock and Bradford and Bingley have their own conditions on remuneration—these are set out in their respective shareholder relationship framework documents, available on the Treasury website.
More broadly, on 13 October the chief executive of the Financial Services Authority wrote to the chief executives of the major banks and building societies, setting out the criteria for remuneration policies and practices which are properly aligned to sound risk management and controls. The FSA is currently undertaking a review of regulated firms remuneration practices and the authorities have made it clear that failure to comply with the standards set out in the 13 October letter will be reflected in the FSA’s risk assessment of firms and will be taken into account when setting capital requirements.