As politicians, members of the European Parliament are justifiably proud of the bonus cap they have agreed to impose on bankers. They seem to have found a politically expedient, legally watertight, electorally popular way to use their limited powers to whack high finance where it hurts. That doesn’t mean that the measure, if confirmed, won’t have potentially grave consequences.
It will increase banks’ fixed costs, weaken the link between pay and performance, accelerate the inevitable drift of financial know-how and power from Europe to Asia, and instantly conjure up a thousand more complex, lawyer-driven alternative compensation structures to get round the rules. Read more