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The Importance of Royal Bank of Scotland

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It should be noted that banks provide stability in the financial market, posting a large loss no matter how large or prestigious the bank is. Confidence in the banking sector is not only affected by controversies but it reverberates to the entire banking community and financial sector. The instability brought about by controversies eventually affects the economy of the United Kingdom as a whole (Monroe, 2010). At the time this controversy was percolating in the banking community there were no existing regulations that will cap bonuses much less the regular compensation of the Royal Bank of Scotland’ s most senior officers.

Ergo for all intents and purposes senior managers were not violating the law and their obligation to do no fault before the bars of justice. However the ethical standard was not only thrown out the window the sense of propriety of the people involved was put into questions. The board of directors itself populated by either the same people who will receive the bonuses shall of course choose to receive the bonus. It should be noted that there is nothing wrong in getting bonuses however, getting it from a distressed bank or an institution that are not only losing money but will be bailed out by the government. Bonuses are incentives given to employees for their good performance.

Bonuses should therefore only accrue if the entire organization performed well. In the case of the Royal Bank of Scotland the opposite happened the senior executives were rewarded for their bad performance (Treanor, 2010). In the case of the bonuses awarded to the senior executives of the Royal Bank of Scotland the bonuses were part of their contract.

Thus, the bank was precluded into awarding it because if its contractual obligation. The action of the Royal Bank of Scotland affected all the stakeholders of the bank. The resulting losses in the value of its shares resulted in losses for all the investors including the United Kingdom government itself. It should be noted that the United Kingdom owns more than half of the Royal Bank of Scotland. The impact of the bonuses resulted to losses that resulted in turn to a bail-out which could have been used by the United Kingdom government to bail out institutions that are truly in distress.

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