EU cap on bankers' bonuses is unhelpful distraction, says Sir Mervyn King


The controversial European Union cap for bankers' bonuses is an unhelpful "distraction", according to the UK's top financial sector regulators.

Giving evidence to the Banking Standards Commission yesterday, Sir Mervyn King said that the move by Brussels "will neither be as beneficial as proponents hope, nor will it be as damaging as opponents fear".

Sir Mervyn added that capping bonuses was "a bit of a distraction" in that it only addressed the symptoms of excessive pay for bankers rather than the underlying cause, which he identified as the implicit subsidy enjoyed by banks that are too big to fail.

Andrew Bailey, the incoming head of the Prudential Regulatory Authority, also giving evidence, said banks were likely to respond to the cap by raising fixed salaries and that this could interfere with regulators' efforts to ensure that bonuses can be clawed back.

"It looks hard, but it runs the risk that it will push up fixed remuneration," he said. "Fixed remuneration is essentially cash out the door."

On the subject of too big to fail, Sir Mervyn said the Vickers Commission should be reconstituted in five years' time to report on whether its ring-fencing reforms have succeeding in making the banking system safer and whether the new regulatory regime was working effectively.

He said: "My own personal view is that it would be sensible to have a proper review after four or five years, not just of the ring-fence, but of a whole range of issues that I would put under the umbrella heading: Has the United Kingdom solved the too-big-to-fail problem?"

The Governor reiterated his call for the Chancellor to implement the original 4 per cent leverage ratio recommended by Vickers, rather than the more lenient 3 per cent ratio the Chancellor, George Osborne, put into the Financial Services Bill after lobbying by banks.

Sir Mervyn noted that bank executives' remuneration rewards tended to be tied to higher returns on equity, which are easier to achieve with higher leverage. "I suspect that is the driving force on the lobbying on leverage," he said.

Sir Mervyn said lobbying by banks was still shaping ministers' decisions on legislation. Speaking of the Labour years, he said: "I was surprised at the degree of access of bank executives to people at the very top – certainly much better than regulators". He added: "The climate has changed since then – but the access hasn't."

Suggested Topics
Start your day with The Independent, sign up for daily news emails
ebooksAn unforgettable anthology of contemporary reportage
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Digital Optimisation Executive - Marketing

£30000 - £35000 per annum: Recruitment Genius: The UK's fastest growing, multi...

Recruitment Genius: Financial Reporting Manager

£70000 - £90000 per annum: Recruitment Genius: A Financial Reporting Manager i...

Recruitment Genius: Payments Operations Assistant

£23000 - £25000 per annum: Recruitment Genius: They win lots of awards for the...

Recruitment Genius: Telephone Debt Negotiator

£13500 - £20000 per annum: Recruitment Genius: This nationwide enforcement com...

Day In a Page

Sepp Blatter resignation: The beginning of Fifa's long road to reform?

Does Blatter's departure mean Fifa will automatically clean up its act?

Don't bet on it, says Tom Peck
Charles Kennedy: The baby of the House who grew into a Lib Dem giant

The baby of the House who grew into a Lib Dem giant

Charles Kennedy was consistently a man of the centre-left, dedicated to social justice, but was also a champion of liberty and an opponent of the nanny-state, says Baroness Williams
Syria civil war: The harrowing testament of a five-year-old victim of this endless conflict

The harrowing testament of a five-year-old victim of Syria's endless civil war

Sahar Qanbar lost her mother and brother as civilians and government soldiers fought side by side after being surrounded by brutal Islamist fighters. Robert Fisk visited her
The future of songwriting: How streaming is changing everything we know about making music

The future of songwriting

How streaming is changing everything we know about making music
William Shemin and Henry Johnson: Jewish and black soldiers receive World War I Medal of Honor amid claims of discrimination

Recognition at long last

Jewish and black soldiers who fought in WWI finally receive medals after claims of discrimination
Beating obesity: The new pacemaker which helps over-eaters

Beating obesity

The new pacemaker which helps over-eaters
9 best women's festival waterproofs

Ready for rain: 9 best women's festival waterproofs

These are the macs to keep your denim dry and your hair frizz-free(ish)
Cycling World Hour Record: Nervous Sir Bradley Wiggins ready for pain as he prepares to go distance

Wiggins worried

Nervous Sir Bradley ready for pain as he prepares to attempt cycling's World Hour Record
Liverpool close in on Milner signing

Liverpool close in on Milner signing

Reds baulk at Christian Benteke £32.5m release clause
On your feet! Spending at least two hours a day standing reduces the risk of heart attacks, cancer and diabetes, according to new research

On your feet!

Spending half the day standing 'reduces risk of heart attacks and cancer'
With scores of surgeries closing, what hope is there for the David Cameron's promise of 5,000 more GPs and a 24/7 NHS?

The big NHS question

Why are there so few new GPs when so many want to study medicine?
Big knickers are back: Thongs ain't what they used to be

Thongs ain't what they used to be

Big knickers are back
Thurston Moore interview

Thurston Moore interview

On living in London, Sonic Youth and musical memoirs
In full bloom

In full bloom

Floral print womenswear
From leading man to Elephant Man, Bradley Cooper is terrific

From leading man to Elephant Man

Bradley Cooper is terrific