Watchdog targets bankers' bonuses

The FSA has been reluctant to involve itself in pay issues

The way banks structure the bonuses they pay to staff will be considered when assessing a firm's exposure to risk, the City watchdog has said.

The chief executive of the Financial Services Authority (FSA), Hector Sants insisted that the regulator would not intervene in setting pay levels.

But it would examine the implications of banks' incentives and rewards with "increasing intensity", he said.

The approach goes beyond what the FSA has previously said it would do.

Big bonuses, regardless of long-term implications of deals, have been blamed by some for encouraging risk-taking in the City.

Curb excesses

"The implication is that if the FSA believes bankers are being incentivised to do reckless or imprudent deals, their respective employers would have to hold additional capital to compensate for those incremental risks," said BBC business editor Robert Peston.

"That would make it much more expensive for any bank to promise its top bankers that they can personally trouser squillions from making big bets with that bank's balance sheet, but that the bankers won't suffer the losses if the bets go wrong".

Last month the governor of the Bank of England, Mervyn King, said that he would look to curb the excesses in bankers' pay.

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