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Bank of England warns EU bonus cap has increased risk of instability in the financial sector 

December 17, 2015

Chris Papadopoullos and Hayley Kirton, City A.M

The EU bonus cap has increased the risk of instability in the financial sector, Bank of England researchers said yesterday.

Chancellor George Osborne is being urged to press the EU on removing rules capping bankers’ bonuses after the Bank called the policy “counterproductive”.

The Bank said that the cap, which restricts bonuses to 100 per cent of fixed pay, cuts the link between performance and pay. It also restricts the banks’ room for manoeuvre when times are tough.

Bankers’ fixed pay as a share of total pay has risen from 28 per cent to 54 per cent since 2013 while “remuneration costs in the major UK banks have remained broadly constant”, according to the Bank’s quarterly bulletin.

Higher fixed pay can “impact negatively on resilience within the financial system”, the Bank said.

Mark Garnier, a member of the influential Treasury Select Committee, told City A.M. that the bonus cap is “imbecilic”. He said: “If it means that Cameron needs to bring this in to the [EU] renegotiations, then maybe he should do.” Read more

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