UK banks face £500m hit from EU bonus caps

Tim Wallace
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BRITAIN’S biggest banks will see their fixed costs jump by at least £500m per year if the EU’s planned bonus cap comes in, Bank of England regulator Andrew Bailey warned yesterday.

If the cap hits the top 1,300 staff at those banks as expected, banks will have to raise their salaries to compensate for the loss of bonus, or face losing them to other industries or countries.

Even if the cap is voted up to two-times salary by shareholders, that will cost half a billion pounds per year, he told the Treasury Select Committee of MPs.

Unlike bonuses, that extra £500m cannot be reduced in bad years and increased in good years, leaving banks less flexible and more vulnerable to recessions.

“Take the UK’s major banks – the sum of the reduction in bonus pools reflecting the cost of Libor fines, and the reduction of unvested bonuses in previous years is £2.5bn this year. That is not a small number,” he said.

“The EU directive has the effect of increasing fixed remuneration, that is cash out of the door, not deferred. So that is a concern, it will reduce the discipline in the structure, but won’t reduce overall remuneration.”