Andrew Bailey, the incoming deputy governor of the Bank of England, is appearing before the Treasury Select Committee. Our banking specialist Tim Wallace:
Bank bonus cap will increase the big UK banks' fixed costs by £500m per year as it will push up salaries, warns regulator Andrew Bailey— Tim Wallace (@Tim_Wallace) March 13, 2013
Andrew Bailey says the big UK banks have cut bonus pools and clawed back a total of £2.5b this yr. Not possible on such scale with bonus cap— Tim Wallace (@Tim_Wallace) March 13, 2013
This highlights one of the main risks of the bonus cap, that by forcing bank costs from variable to fixed costs they will be unable to respond to bad economic results by reducing bonus payouts. Instead, they will have to lay off staff. What is intended as a measure to improve financial stability may in fact be destabilising.