Citybriefing

FSA urges EU restraint on bankers’ bonuses caps

EUROPE should tread carefully in its quest to cap bankers’ bonuses at no more than their annual salary as this could lead to higher basic pay, making it harder for lenders to claw back rewards and build capital, a UK regulator said yesterday.

EU lawmakers, supported by Germany and France but opposed by Britain, argue that imposing caps on bankers’ bonuses will prevent the sort of excessive risktaking that contributed to the financial crisis.

The danger is that banks may respond by hiking basic salaries to attract talent, said Andrew Bailey, a senior supervisor of banks and insurers at Britain’s Financial Services Authority.

“I am sceptical ... There is a real danger that [a bonus cap] pushes up fixed costs,” Mr Bailey told an economist conference.