RBS bonuses: a necessary evil.

RBS and the Treasury have reached an impasse, with key executives threatening to quit if their bonuses are capped.

Last year, when RBS sunk, the government had two options: let it sink and risk a 1930s-style Depression or face "moral hazard." They were tossing a two-headed coin when tails was being demanded - an invidious position.

Now, comes the question about bonuses. It is the widespread belief that it is utterly immoral to fill the pockets of the executives when the rest bear the brunt of the recession - even more so when the taxpayer kept RBS afloat.

Nevertheless, however vehementely we disagree with bonuses in such a sombre period, it is in our interests. RBS needs to remain competitive. 84% of the bank is state-owned, and thus, if the bank is to return our money in the long-term, they must be competitive. This will not happen if the Treasury meddles with their bonuses: those at the top will leave and the bank will crumble. They will go to the other top four banks - exactly what the government do not want. So although we despise bonuses, it would be counter-productive to cap them.

However, that does not mean to say that bonuses by its very nature is a good thing. That would be grossly wrong. The insidious culture of bonuses needs to be reformed - but that cannot be achieved by targeting one bank by itself - the whole system needs to be changed collectively.