Banks urged to cut back on bonuses in the face of economic uncertainty

Banks have been told to reduce bonuses and shareholder dividends in the face of worsening economic conditions and the European debt crisis.

The Bank of England’s new Financial Policy Committee (FPC) said banks should strengthen their finances by ensuring that discretionary payments reflect any fall in profits.

A statement from the FPC said: “The committee therefore recommended that banks should take any opportunity they had to strengthen their levels of capital and liquidity so as to increase their capacity to absorb flexibly any future shocks, without constraining lending to the wider economy.

"This could include raising long-term funding whenever possible and ensuring that discretionary distributions reflected any reduction in profits.”

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