European Parliament, to put a lid on bankers’ bonuses, try stop mistreating weaker bank borrowers

Sir, here is what I would say to the members of parliament in the Strangers’ Bar of the UK House of Commons, if there when as Martin Wolf describes them discussing the European Parliament’s efforts to cap banker bonuses, “The curious case of Brussels and the bankers’ bonuses” March 2. 

The main reason for high bankers’ bonuses is that they now do not have to share the revenues as much as they used to with shareholders, and the reason for that is that banks are now not required to have any substantial amounts of capital, that is as long as their exposures can be considered “absolutely safe”. 

And so I would ask the regulators to increase the capital requirements, especially for what is perceived as “absolutely safe”, because there, as we all know, is where also the dangers of any too dangerously high bank exposures are always to be found. 

But it seems the regulators do not want to increase those capital requirements, and the only possible explanation, besides of course that of them being daft is that they have been lobbied too generously by bankers and “infallibles” alike. 

But much worse than causing high bank bonuses, is the way how those capital requirements distort the markets; and how, by favoring lending to what is perceived safe, whether for real or only Potemkin type safe, discriminate so odiously against the bank borrowings of all others de facto classified as “The Risky”, no matter how decent and worthy. 

And so UK should state: We do not want to cap bankers’ bonuses the way the European Parliament currently suggests, because that just prolongs the distortion of the markets as well as the senseless regulatory favoring of the haves, the history, the old, “The Infallible”, thereby discriminating against the have-nots, the future, the young, “The Risky”. 

And then for good measure, the UK should also propose that as one should perhaps not go too fast on tightening the capital requirements, one can meanwhile put a cap on how much in annual total compensation per banker is allowed to be a tax deductible expense… and that would take care of solving a couple of problems, while even reducing the distortions.

And then to wrap it up, going for the killing, I would ask: “European Parliament, given how banks have profiting the last decades, is it really so smart to reduce banker´s bonuses only to increase the dividends per bank share? Is it the interests of bank shareholders you are defending?

Why must UK say “No!” to EU on a bonuses cap, without presenting any decent counterproposals?

Sir, I refer to your editorial “Diplomatic fallout from EU bonus cap” March 1. 

Solving the absolutely valid concerns about excessive bonuses paid in banks, by means of capping the bonuses to staff to a maximum percentage of their salaries as the European Parliament proposes, only introduces another distortion… on the road to overmedication 

What I would suggest doing, and thought it might seem to be similar regulatory distortions to you, is in fact reducing other distortions that influence the bonuses paid. 

First, since tax-deductibility is in itself a source of distortion that favors big bonuses, I would limit how much remuneration a banker can get in order for it to be a tax deductable expense, 

And secondly, I would eliminate those extremely low capital requirements for banks for exposures to what is considered as infallible, since these impede the existence of sufficient shareholder´s compensation requirements which can keep the bonuses in check. 

I would of course also do the latter as you know, because the minimalistic capital requirement for what is “safe” and which thereby discriminate what is perceived as “risky” is in fact, on its own, the greatest source of distortions which makes it completely impossible for banks to help allocate economic resources efficiently. 

Why must UK say “No!” to EU on a bonuses cap, without presenting any decent counterproposals?

FT, if rightly concerned with bonus cap, why not with other regulatory caps?

Sir, you are not being consistent. In “Bonus cap is a bad omen for Britain” February 19, you rightly argue that “politicians are a poor substitute for the markets… A cap on the ratio of variable to fixed pay… removes a tool for managers to control risk”.

But when regulators allow different capital requirements for banks based on perceived risk, and thereby are effectively substituting for the markets, and capping the returns on bank equity for assets perceived as risky when compared to assets perceived as infallible, and thereby discriminating against borrowers perceived as risky favoring those as safe, then you keep totally mum about that.

With that attitude are you not favoring bankers more than their shareholders or their borrowers and, if so, is that really living up to your own motto?