Make Investment Bankers Liable for Losses First, Berenberg Says
Source: Bloomberg News
Investment banks should be transformed to more closely resemble private partnerships in which employees are responsible for losses before investors, according to James Chappell, an analyst at German private bank Berenberg Bank.
Variable compensation should be paid in long-term capital adequacy buffer securities, or CABS, which would mean losses for bankers and traders if their decisions backfired, Chappell wrote in a July 20 client note. That, combined with an increase in capital, would help restore confidence in the industry, he said.
“CABS would fulfill two main purposes,” he wrote. “Firstly, they would align employees’ interests with those of other stakeholders, and secondly they would add to the capital buffer.”
Investor confidence in the financial industry has fallen after regulators announced probes into the manipulation of benchmark interest rates including the London interbank offered rate, the basis for $500 trillion of securities.