Michel Barnier, a vice-president of the European commission with responsibility for financial services, has written to the EU's banking watchdog seeking 'a coordinated policy response' to banks that sidestep the EU bonus cap by simply paying their top staff with extra allowances instead.
Earlier this year the EU said it would limit bankers' bonuses to one year's salary, or twice that amount with shareholders' approval, in a bid to get banks to behave more responsibly. It's hardly a radical policy, especially as bonuses have shown no sign of slowing even at banks that have had to be bailed out by the taxpayer.
Yet it may come as no surprise to learn that the banks had other ideas. No bonus? Why not just up the allowances in cash or shares instead. Hence Stuart Gulliver, the chief executive of HSBC, gets an additional £32,000 a week in allowances – on top of his £1.2m annual salary. Yes, you read that right. Top executives have been rewarded with shares at Lloyds Banking Group and Royal Bank of Scotland, both of which have of course been bailed out. Barclays has similar schemes.
Now Barnier has written to the European Banking Authority, the banking watchdog, highlighting his 'strong concerns' about these allowances, in which 'the spirit – if not the letter – of union law is being disregarded'. His tenure is coming to an end this year, and as a parting shot he's pushing for a 'collective proactive stance' on reinforcing the bonus cap.
The UK government, meanwhile, clearly sees no value in the collective approach and has adopted a stance all its own. First it was outvoted 26 to one on the bonus cap in 2013. George Osborne then ordered a legal challenge at the European court of justice – saying that the cap would hurt financial stability by giving banks 'perverse incentives' to raise fixed pay instead. There is an obvious alternative: which would be for bosses not to get an extra £30k a week on top of their already comfortable salaries.
But for some reason that doesn't seem part of the equation. Note that London happens to be home to the vast majority of European banking's highest earners. The UK government is saying that these allowances count as fixed pay, and has approved their introduction at banks like Barclays, Goldman Sachs and HSBC. The EU argues they're not fixed pay, as they're dished out selectively to senior staff, are limited in duration and can be cancelled.
This one is set to go all the way: the UK government is making its case today at a hearing in Luxembourg. The European Banking Authority is due to report on allowance payments at the end of the year, to get everything clear ahead of next year's pay-setting round at the banks.
Barnier, meanwhile, is on his way out of his post, so this is something of a parting shot: he wants the Authority to share the results of its research by the end of this month, to improve the bonus cap's chances of staying in place.
Yet it's hard to avoid the suspicion that, no matter how tight the EU's cap, the banks and the UK government will do their best to shake the bottle in order to find a leak.