James Moore: It's head the City wins, tails we lose as RBS has wings clipped

So the bonus boys have at last had their wings clipped. Well at least at Lloyds and Royal Bank of Scotland.

As a consequence of the nearly £40bn the Government has made available to prop them up, cash bonuses to anyone earning more than £39,000 will be banned.

This shouldn't worry Lloyds too much. It is primarily a retail bank and commercial bank. The wild men from HBOS who got involved in big-ticket financing of takeovers and mergers in the City– shooting craps for big-ticket rewards – have mostly been packed off into the sunset. Telephone numbers are unlikely to be paid to many outside a charmed circle of top executives.

But RBS is different. The bank's distressed state has, according to chief executive Stephen Hester, already led to problems retaining top staff.

Despite this, however, its investment banking business proved itself to be in relatively decent health at the half year. Whether that will last is now open to question. Headhunters will find their telephones ringing off the hook over the next few days as RBS's top bankers digest the restrictions that have been placed on their pay packets. They are going to vote with their feet.

Other banks have also faced restrictions on what they can pay out (and how they can pay it), but they are nothing like as onerous as those imposed on RBS. Barclays, fresh from its latest round of organisational musical chairs and hell-bent on world domination, is in a powerful position to sweep up whomever it wants. And it's not alone. There's also HSBC and any number of foreign banks which will be queuing up behind it.

In future their bonuses will (like those at RBS) be largely paid in shares. But if your bonus is going to be paid in paper, with deferrals and clawbacks and all the rest, whose paper would you rather have? That issued by the likes of Barclays, HBSC, Goldman Sachs, Credit Suisse – healthy banks, all of whose shares come with dividends and are in demand from investors; or a state-backed basket case like Royal Bank of Scotland, whose future remains uncertain at best? There's no loyalty in the City, and even if there was, the choice doesn't look too hard.

If you're bright and greedy and in demand, staying at RBS doesn't make a whole lot of sense now.

In agreeing to pump so much of our money into this bank, the Government had to extract something in return. The trouble is that the bonus restriction that it has demanded may ultimately mean that it has effectively left Mr Hester operating with one hand tied behind his back. Many of his profit centres have to be sold to placate the EU, and the part of his bank that is performing the best looks doomed.

Mr Hester's task, then, is to pull a rabbit out of his hat. If he can do it, he might even be worth the £10m he has been promised to return this zombie bank to life. If he can't, the City boys will still win, but it's us who will lose.