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FSA warns banks need to make severe culture changes

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by Kay Mitchell

The Financial Services Authority (FSA) has warned that in order to survive the recession, British banks need to make severe culture changes.

In its latest financial risk outlook report, the City watchdog said that despite the hundreds of billions of pounds pumped into the financial system, the banking system is ‘vulnerable to further shocks’.

According to the FSA, the bonus culture is partly responsible which encourages risks and recommends banks focus on medium-term survival, rather than short-term growth.

The subject of bonuses has been in the press in the last week after it was revealed that Royal Bank of Scotland and Lloyds Banking Group (both partly-owned by the Government) are set to award bonuses to its staff.

Last month, nationalised Northern Rock sparked outrage after it paid almost all of its 4,500 employees a 10% bonus – an average of £2,000 each.

Meanwhile, the financial crisis has meant that it will take some time to restore consumer confidence, according to the FSA.

Finally, the FSA also warned that the financial crisis has not yet run its course with the UK economy forecasted to contract by 2.2% this year.

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News posted: February 9, 2009

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