Jeremy Warner: Bankers' pay will be curbed one way or another

Outlook The politicians have to be seen to be doing something to assuage public anger over bankers' pay, and it is indeed outrageous that organisations which would be insolvent but for the support of taxpayers are continuing to pay some employees multimillion-pound bonuses.

Yet the markets will eventually deal with bankers' pay a good deal more effectively than any amount of regulation will. The City doesn't yet seem to get this.

Instead, the mentality is still stuck in the past, where star traders and corporate financiers demand their siloed "market rate", however large the losses of their sponsoringorganisations might be. If they don't receive it, they threaten to go elsewhere.

Good luck to them is what I say. There are still organisations around prepared to pay massive rewards for speculating with other people'scapital, but they are becoming ever thinner on the ground. Any trader who still believes he has the powers of the alchemist should beencouraged to use his own capital, or persuade others to back him if he can. In these markets, he may find it a struggle.

Similarly, even solvent corporate clients are adopting the "can't pay, won't pay" attitude on the usurious fees that bankers have charged for their advice and capital raising. We are in an age of massive restructuring throughout global capital markets.

Excess pay will no doubt persist in some parts of the world and in some areas of the markets. The talented and the plain chancers will gravitate to them as they always do. No amount of regulation will prevent this, for like everything else, excess obeys the waterbed principle: squeeze it down in one part of the system and it will merely rise up again somewhere else. The markets will always manage to stay one step ahead of the regulators.

Yet for plain vanilla banking, the age of excess is over, and even the hedgies may find the capitalrequirements that are about to be placed on them too onerous to make the massive short-term gains they have become accustomed to. Aseminal change is under way which many bankers have yet to come to terms with.

There just isn't the money around any longer to pay these massive rewards.

The pay curbs announced by Barack Obama in the United States this week are in truth no more than lip service to the baying mob. For a start, they do nothing to address the sins of the past. The front-line bankers responsible for the present mess are mainly gone. They've banked their millions and are now off to the golf course.

Capping the pay of executives who avail themselves of futuregovernment support is for allpractical purposes a meaningless gesture. The age of excess is now gone, and other than send bankers to jail there isn't much we can do about it now. Yet there is perhaps apowerful symbolic significance in the initiative.

Pay differentials got completely out of hand during the boom, and, as is now all too apparent, the masters of the universe failed to create the long-term wealth that might justify such rewards. It is, therefore, absolutely right that top bankers should be paid little more than top civil servants.

Of course, those now coming in to run publicly subsidised banks hadlittle if anything to do with the excesses which brought theseorganisations down. Sorting out the mess is a huge challenge which requires top people.

These positions are alsoexceptionally high profile, and the damage to personal reputation ingetting it wrong in such a public manner could be profound.

Yet in this environment, do already wealthy individuals need to bepowerfully incentivised in order to do the job? A sense of public service and the promise of a gong at the end of it should be enough.