Exclusive: Treasury 'Panic' Over EU Bonus Cap
The Government has embarked on a desperate damage limitation effort to persuade major City employers that they still have a future in London despite proposals from Brussels that will hamper their ability to pay bumper bonuses.
I have learnt that Charles Roxburgh, the director-general of financial services at the Treasury, has contacted a string of major UK and European banks in an attempt to reassure them that the Government would continue to fight the proposals agreed by European Union governments and officials last night.
The blueprint would see bank bonuses capped at one year's salary, or twice that level with the explicit approval of a super-majority of shareholders.
Britain has publicly attacked the idea, saying that it will damage the City, Europe's largest financial centre.
Speaking in Latvia today, David Cameron argued against the new rules while Boris Johnson, the Mayor of London, called them the "most deluded measure to come from Europe since Diocletian tried to fix the price of groceries across the Roman empire".
Mr Roxburgh's intervention underlines the scale of nervousness within the Government that a bonus cap could force an exodus of banks to financial centres outside the UK, such as Zurich and New York.
"The message was that they still have some bargaining power, but they are in a state of total panic," one banker said of the Treasury's effort to communicate with banks on Thursday.
It also highlights a tricky position for the Treasury, which has publicly attacked banks for their payment of bonuses to employees.
Today, the largely state-backed Royal Bank of Scotland unveiled a £607m bonus pot for its staff for their work in 2012.
Critics of the EU proposals, which would come into force next year assuming they are ratified in May, say they could increase risk in the banking system by forcing up base salaries to enable the continued payment of large bonuses.
Britain is expected to outline its position further at a meeting of European finance ministers in Brussels next Tuesday. George Osborne, the Chancellor, may attend the summit.
The Treasury declined to comment.
Simon Lewis, chief executive of the Association for Financial Markets in Europe, which represents the major investment banks, said:
"We recognise that progress has been made towards conclusion of the negotiations on CRD4 [Capital Requirements Directive 4].
"Much detail still has to be clarified, but the outline agreement on this new regime for European banks is a major step forward in creating a stable framework within which the industry can plan for the future.
"The package also balances a requirement for enhanced financial standards with the need to support economic growth - for example in showing flexibility over liquidity provisions and counterparty credit risk.
"We have yet to see the detailed text, but unfortunately CRD4 also includes measures on compensation that will increase fixed costs at a crucial time of bank restructuring.
"The outcome will be an inflexible cost base, contributing to greater risk in banks. This will seriously harm European competitiveness and have a negative impact on the real economy."