Nils Pratley: Bankers and Bonuses

Here is a late-in-the-day Treasury announcement on bonus reforms, just as the chancellor leaves the labor party conference for an international summit. The timing looks strange. So does the claim that this is "a major step forward".

The oddity lies in the fact that we assumed the Financial Services Authority already had the powers to impose most of the rules that the five banks – Barclays, HSBC, Lloyds, RBS and Standard Chartered – have now kindly agreed to adopt. Still, let's not be churlish. It is clearly helpful that it is now spelled out starkly that the new principles apply to the 2009 bonus season. Never under- estimate the banks' ability to interpret ambiguities in their favor.

The main rules are sensible enough – no bonuses to be paid entirely in cash; no guaranteed bonuses; lots of provision for clawing back payments that turn out to be undeserved, and beefed-up remuneration committees. Nothing controversial there.

But there are still gaps to be filled. Banks must ensure they have a "sound capital base over the long-term, while managing the risks that arise if an organisation cannot pay competitively to retain the right people". That wording tells us little about how strong the FSA will be in obliging banks to redirect their profits away from bonuses and towards capital conservation.

And what does disclosure of "aggregate information" on the pay of all risk-takers mean? Is that an endorsement of Sir David Walker's prescription that pay bands for all employees who earn more than the average board member should be published? It sounds weaker than Walker. More details please.