How to clip a bankers wings

Hawkeye123

According to the rules of accountancy, - a company records a profit on the date that a deal is agreed, not when payment has been received. This rule has led to bankers awarding themselves enormous bonuses by handing out loans in a very cavalier fashion.

I think this rule of accountancy should be changed so that the profit is only deemed to have been made after payment has been received in full. Alternatively, could I suggest new legislation to prevent the awarding of bonuses based on agreements but permitting bonuses after payment for any given service, product or loan has been received in full.

Crucially, if the rules of accountancy were changed - the effect of this could quite reasonably be applied to all existing outstanding loans. In other words, certain bankers would have to hand back their bonuses. The beauty of this idea is that the constitutional impediment on introducing retrospective laws could be circumvented by changing the rules of accountancy instead - and then simply applying these new rules of accountancy to all outstanding loans.

srsly78

Dunno about Irish banks, but most of the big investment banks use deferred bonuses anyway (only get your bonus after 5 years say). Lehmann's introduced it in the 90s I think (didn't apply to guys at very top ofc, only to traders etc), lot's of bankers ragequit over it. Didn't seem to help much.

SBWife

Your knowledge of accountancy is very basic. In the case of a loan when the loan is held on the books of the bank (not securitised) the profit or loss is taken over the life of the loan. It's only if the loan is sold that the P or L would be immediately recognised.

For many financial service workers while the actual accounting profits make a difference to the atmosphere in which bonuses are awarded the amounts would be dependent on individual performance and the performance of the immediate unit or product area. Changes in the IFRS under which the bank reports would have little or no effect. In most organisations it would only be the very top people who would have bonuses tied to overall EPS growth or ROE etc.

Laminations

How about just no bonuses, like the way most of us do our jobs? 'Do your job or get fired'. Your performance review will determine whether you have a job next year rather than how much extra you should get for the short term consequences of your decisions. And if that isn't enough motivation. make it like Glengary Glenross, with a league table. You come bottom on non-performing loans you get fired. You come bottom on number of loans issued you get fired. So you compete to issue as many solid loans as possible.

And senior management should only receive additional recognition at the end of their tenure, 5 years after they leave a financial institution based on the performance of that institution during their reign.

Laminations

And how about, while we are at it, extending opening hours and availability of all professionals. People need access to these services on weekends or evenings. I can go buy jocks at 8 o clock on a Thursday night but cant see my GP or get a dentist or talk to a bank manager. I'm not expecting people to work longer hours, or work unsociable hours in the dead of night, I'm just expecting they work in shifts like the rest of us so they ensure service is available for as many hours as possible.

Hawkeye123

Hello SBWife. You have missed the point. The rules of accountancy can and should be changed in such a way as to punish bankers for their misbehavior.

barneystinson

Hawkeye123 wrote: »

Hello SBWife. You have missed the point. The rules of accountancy can and should be changed in such a way as to punish bankers for their misbehavior.

No, I think you have missed the point - the problem isn't the fundamental principles of accounting.

That's like saying the speed limit is 60mph, but because a minority of people insist on driving 120mph and their actions are causing carnage, that the speed limit be reduced to 40mph rather than actually attempting to change the behaviour of the drivers causing the problem... (Not a great analogy but the logic, or lack thereof, and the narrow focus, are similar).

hockeygirl

SBWife wrote: »

Your knowledge of accountancy is very basic. In the case of a loan when the loan is held on the books of the bank (not securitised) the profit or loss is taken over the life of the loan. It's only if the loan is sold that the P or L would be immediately recognised.

+1

This is not a political or economic forum.

Hawkeye123

barneystinson wrote: »

No, I think you have missed the point - the problem isn't the fundamental principles of accounting.

That's like saying the speed limit is 60mph, but because a minority of people insist on driving 120mph and their actions are causing carnage, that the speed limit be reduced to 40mph rather than actually attempting to change the behaviour of the drivers causing the problem... (Not a great analogy but the logic, or lack thereof, and the narrow focus, are similar).

Barney, Barney - poor naive Barney. Let me give you a simple illustration of what I mean. In 2008 a certain solicitor was disbarred because he used the same property as collateral for incurring many loans. This was an abuse of his power as a solicitor and the media began discussing ways to reign in rogue solicitors. Almost immediately - the Law Society decided to disbar the rogue but it was obvious their motive was because he had rocked the boat from their perspective. Interestingly - that very same week a gangland thug was shot and killed after he phoned a live radio show from his prison cell. The Minister in government was none too pleased I can tell you and he clamped down on all kinds of contraband in the prisons - this upset the prisoners and the guy who phoned from his cell ended up dead. You see the comparison - the solicitors are a click, so are the prisoners - they watch each others backs but if one of them steps out of line they turn on him like wolves. The accountants are no different - all we need is one of them to step out of line and they all break rank - thats when the cosy cartel ends.

barneystinson

Hawkeye123 wrote: »

Barney, Barney - poor naive Barney. Let me give you a simple illustration of what I mean. In 2008 a certain solicitor was disbarred because he used the same property as collateral for incurring many loans. This was an abuse of his power as a solicitor and the media began discussing ways to reign in rogue solicitors. Almost immediately - the Law Society decided to disbar the rogue but it was obvious their motive was because he had rocked the boat from their perspective. Interestingly - that very same week a gangland thug was shot and killed after he phoned a live radio show from his prison cell. The Minister in government was none too pleased I can tell you and he clamped down on all kinds of contraband in the prisons - this upset the prisoners and the guy who phoned from his cell ended up dead. You see the comparison - the solicitors are a click, so are the prisoners - they watch each others backs but if one of them steps out of line they turn on him like wolves. The accountants are no different - all we need is one of them to step out of line and they all break rank - thats when the cosy cartel ends.

Well that's a marvellous story, thanks?

And I am far from naive my smarmy friend, I regularly see plenty of the wacky stuff that accountants who break ranks do, thanks very much.

I shouldn't even be indulging your nonsense, and I won't again...

ted2767

Hawkeye123 wrote: »

Hello SBWife. You have missed the point. The rules of accountancy can and should be changed in such a way as to punish bankers for their misbehavior.

The role of making and enforcing laws is that of legislator.
The role of enfircing laws is for the police forces.
As for your suggestions they are simplistic and not very well thought out.
If you want to change the world enter politics, changing accounting policies could never prevent irregularaties or misapplication of same said policies.
If you think it could, grow up.

smcgiff

Oops - wasn't following this thread...

BESman

Bonuses have very little to do with revenue recognition or accounting standards. This is a private enterprise remuneration issue. If a board signs off on exorbitant bonuses and remuneration packages for its directors and management, that is their perogative and has nothing to do with accounting policy, solicitors or prisoners.

Not agreeing with it, but thats life.