Bank bonuses caused credit crunch, says King

Exorbitant bonus structures are responsible for the credit crunch, says Mervyn King.

The governor of the Bank of England says incentives provided by banks have encouraged employees to take unnecessary risks on complicated financial instruments.

The governor says bonuses were tied too directly to short-term outcomes rather than the long-term results of investments.

King says: “Banks have come to realise they are paying the price for having designed compensation packages that provide incentives that are not in the long-run interests of the banks themselves.

“We must make sure it doesn’t happen again. I think all of us – and I do not exclude the Bank in this – have learnt a lot of lessons from the last nine months.”