The past weeks, the banking sector caused a controversy with the rewarding of abundant bonuses. Especially in the case of ING, that even though it is still heavily indebted to the Dutch state, rewarded a bonus of 1.25 million euros to an ING top executive. Even though the executive finally did not accept the bonus, the situation caused great annoyance to the parliament and the unions. High bonuses are controversial, because these are thought to support risky behaviour with bankers. And it is this risky behaviour that is thought to be one of the causes of the crisis. 
TEXT: Laura Kox
IMAGE: Pauw en Witteman

Following this controversy, Pauw and Witteman hosted a debate between Boele Staal (chairman of the NVB – Dutch Association of Bankers) and Ronald Plasterk (politician for the Dutch Labour party PvdA). Staal understood that politicians had the right to be upset about the bonuses, because they represent the taxpayers. Still, he worried that the tone of the debate could harm the banking system. He hereby referred especially to the suggestion in parliament to claim back the money.

This debate is the old stanza states versus markets all over again. To what extent is the state allowed to interfere with the financial sector? Actually it is state interference that saved the ING in the first place, and thereby the credibility of the Dutch banking environment as a whole. If the state would not have interfered, this would have been disastrous for the people, but also for the credibility of the Dutch banking environment.

Francis Fukuyama together with Nancy Birdstall already noticed in a recent article that the countries that were most liberal in their financial regulation were hit hardest by the current economic crisis. The financial regulators’ lacking ability in for instance Great Britain and the United States to use their powers in rapidly evolving markets are a case in point in advising to create an effective public sector. Although the original advice of Fukuyama and Birdstall was pointed at developing countries, this does not make it less applicable in developed countries. Even though the public sector in the Netherlands might be way more evolved than those in most developing countries, it should also be given the ability to enforce regulations.

Staal does have a point when he states that the ING has kept itself to the Banking Code that was set up last year and allows a bonus with a maximum of 100 percent of the current salary. And this is exactly what bothers me in this situation. Of course, bankers have the right to keep to their code of banking, but was it the right thing to do under the given circumstances?

And here is the twist for me. As for liberalism, that dictates fear of regulation, the current crisis put pressure on the tendency of non-regulation with regard to, for instance, the reward system for top executives.  Hence the crisis made a regulation such as the Banking Code possible. Staal used the Code as an excuse, defending the intolerable high reward, yet the code just produces a maximum standard. In my opinion the bonus was way too high.. The bankers should not have looked at the code only but also to the circumstances in which it was awarded. Was it not the banking sector that caused the crisis in the first place? And is it not highly unethical to reward high bonuses while the bank is still in government debt? Why should the politicians not have a stringent debate about it? The bank itself should have made another decision in these circumstances to begin with.