Remember those poor bank board members, they are hurting!

I  was startled last week to read an article arguing that bank board members [take note, I say bank board members] in Ethiopia are under paid, and that the cap by the central bank should be abandoned… The writer seems to suggest that these poor Ethiopian bankers  need supporting instead of having all this regulation put upon them, which makes it hard for them to do their job of using our money to make money for themselves. Many of them (generally large individual investors) have apparently complained that they will lose their top talent. Oh these self serving jokers… They ought to bring better argument?

Personally I would argue that the fixed payment set by the central bank should be tied to inflation, or be subject to regular review…but beyond that the incentive to abuse is very high. Very high!

By the way the threat of losing talent isn’t new. The argument is regularly advanced in Europe and the US. But, for Ethiopia this is a badly rehearsed storyline. Are we to believe that if the central bank of Ethiopia continues to be too harsh on board members, then the banks will close, or the geniuses move to Nairobi?

Bull…

These guys don’t have any real chip. What they want is the removal of the cap so that they can get on with their job of making money for themselves. But don’t forget that banks make money from our money. Remember that some of these men sitting on bank boards’ walked away immensely rich from the compensations they voted to themselves. They literally took the money and ran, and no one stopped them.

Now that we’ve stepped back a few paces from the brink (remember Awash or Nib banks) – thanks, let’s not forget, to the intervention of the central bank, as part of its general mandate to oversee banks’ soundness – the financial sector wants to rapidly return to business as usual, even as the rest of the nation continues to suffer from rising unemployment and severe hardship.

These guys had learned nothing from the crisis, and want to carry on behaving with the same disregard for morality, and go right back to the abusive practices that threatened many private banks to the edge of collapse

No way jose! That’s not going to happen.

In fact one can make the case that compensation cap has been the single best thing the central bank did to prevent financial crisis in Ethiopia.

Be careful not to exaggerate, is our advice to board members, because small investors and the public are asking why is it okay for board members to vote their own compensation. At the very least, one might have thought, they would, these days, show some restraint for fear of creating a public backlash.

The good news is that the public and small investors seem to be ready to fight the industry’s selfishness. The bad news is that we seem to have accepted the notion that banks should make lots and lots of money for serving as financial intermediaries.

People assume that banks always made beaucoup, beaucoup money. In reality it wasn’t. Until probably the early 1990s (globally), banking was a well-rewarded profession, but not an egregiously rewarded profession.

No doubt times remain hard and sympathy remains in short supply for bank board executives, but considering their behavior, it’s hardly surprising.