EU nears cap on banker bonuses, as Osborne holds out

The UK is one of just three countries opposed to the cap.

EU banking reforms are set to impose a limit on bankers' pay, against the wishes of much of the City of London.

The proposal, backed by the democratically-elected European Parliament, would cap bonuses that exceed the recipients salary. France has recently come around to the idea, and, the Financial Times reports, there is now a "clear majority" which is willing to agree to the cap just to get the debate out of the way. The rest of the reforms, which are focused on bank capital ratios, are considered urgent, and there is little desire to hold them up over the pay caps.

The UK, leading those who oppose the pay caps, has suggested that even it is preparing to case on the basic idea, circulating a policy document suggesting reforms which "build on the principle of a cap", the paper reports:

It strengthens current rules enforced in the UK with an absolute ban on upfront cash bonuses that exceed salary and a requirement for bank shareholders to set a cap on variable to fixed pay.

But a ban on upfront cash bonuses is very different from the ban on the entire bonus exceeding salary. That proposed ban can, with a vote from a supermajority of shareholders, be weakened to a 2:1 ratio of bonus to salary, but even that is still a far more restrictive requirement than the one the UK desires.

The British government has reasons for its scepticism. The argument for including bonuses in a bill focused on bank stability is that, when a bonus can exceed the value of one's salary, the incentive to play it safe rather than go for massive short-term profits is reduced. But the UK also makes a compelling argument for focusing just on cash bonuses. Other types of bonus, like front-dated stock options or bonds which vest only if the employer still exists, can be tweaked so as to encourage not only profit but healthy, stable, profit.

In contrast, if the EU's current plan passes, the incentive will be to offer the entire value of the cap in up-front cash. The magnitude of the bonus may thus be shrunk, but its incentive effects could end up being perversely increased.

Nonetheless, politically the economic effects of the bonus cap are likely to be less important than the simple fact of its existence. The banking sector has been seen as overpaid by most of the British public for a very long time now, and if Osborne digs his heels in over what many will see as the right for banks to pay unlimited bonuses, he could find himself even more unpopular than he already is.

That is especially true if the importance of what is being delayed hits home. The capital ratios — which are the main focus of the talks — are widely seen as one of the first post-crisis regulations which could actually have a real effect on the likelihood and severity of future financial crises. By requiring banks to have a certain amount of liquid capital on hand, the move will, it is hoped, prevent the damaging bank runs which ultimately contributed to the recession in 2008. If the Chancellor is seen as holding the economy hostage over the right for banks to pay unlimited bonuses, his image as a canny political operative may be damaged somewhat.

Photograph: Getty Images

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

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Does it matter that Westminster journalists have a WhatsApp group?

Well yes, a little.

“#WESTMINSTERBUBBLE JOURNOS CHAT ON #WHATSAPP. NOW THAT’S INTERESTING,” writes the alt-left site Skwawkbox.

Its story refers to the fact that Westminster journalists have a WhatsApp group chat. The site finds this sinister, suggesting the chat could be used to “swap info, co-ordinate stories and narratives”:

“It’s a technology that worries Home Secretary Amber Rudd, in case terrorists use it – but its use by the Establishment for 1984-style message co-ordination would worry many people just as much.”

Skwawkbox’s shock was mocked by lobby journalists and spinners:


Your mole, who has sniffed around the lobby in its day, also finds the suggestion of journalists using the app for terrorist-style collusion a little hard to swallow. Like every other industry, journos are using WhatsApp because it’s the latest easy technology to have group chats on – and it’s less risky than bitching and whining in a Twitter DM thread, or on email, which your employers can access.

But my fellow moles in the Skwawkbox burrow have hit on something, even if they’ve hyped it up with the language of conspiracy. There is a problem with the way lobby journalists of different publications decide what the top lines of stories are every day, having been to the same briefings, and had the same chats.

It’s not that there’s a secret shady agreement to take a particular line about a certain party or individual – it’s that working together in such an environment fosters groupthink. They ask questions of government and opposition spokespeople as a group, they dismiss their responses as a group, and they decide the real story as a group.

As your mole’s former colleague Rafael Behr wrote in 2012:

“At the end [of a briefing], the assembled hacks feel they have established some underlying truth about what really happened, which, in the arch idiom of the trade, is generally agreed to have been revealed in what wasn’t said.”

Plus, filing a different story to what all your fellow reporters at rival papers have written could get you in trouble with your editor. The columnist David Aaronovitch wrote a piece in 2002, entitled “The lobby system poisons political journalism”, arguing that rather than pursuing new stories, often this ends up with lobby journalists repeating the same line:

“They display a "rush to story", in which they create between them an orthodoxy about a story – which then becomes impossible to dislodge.”

This tendency for stories to become stifled even led to the Independent and others boycotting the lobby in the Eighties, he notes.

Of course, colleagues in all industries have always communicated for work, social and organisational reasons in some way, and using WhatsApp is no different. But while Skwawkbox’s “revelation” might seem laughable to insiders, most people don’t know how political journalism works behind-the-scenes. It touches on a truth about how Westminster journalists operate – even if it’s wrong about their motive.

I'm a mole, innit.