You knew that the party was over when the Bank of England started practically giving away sweaty wads of bills – but attacking your salary too? Heartless. Despite the excessive build-up of credit-creation and risk-taking that eventually snowballed into what we now call, in oh so tremulous tones, the subprime crisis, for years the U.K.’s Financial Services Authority didn’t give much of a rat’s arse about how sky-high City paychecks affected a bank’s capital structure. That’s all beginning to change – and in a fashion we presume likely won’t bode so well for London’s hard-working traders and bankers.

The structure and scale of bonuses will be taken into account by regulators when they assess banks’ exposure to financial risk.

Hector Sants, chief executive of the Financial Services Authority, told a City dinner on Tuesday night that although the regulator would not dictate pay levels, it would consider the implications of remuneration structures when judging the overall risk of individual institutions. “We will do this with increasing intensity,” he told the Investment Managers’ Association.

Mr Sants later told the Financial Times: “When we look at risk, we should be looking more than we have in the past at compensation structures that encourage risk-taking.”

The framework of rewards and incentives will feed into FSA assessments of how much capital banks need to cushion themselves against possible losses.

Mr Sants’ words will add to the clamour for change in the way bonus schemes are structured. There are mounting concerns that they have been devised in a way that rewards excessive short-term risk-taking and have fuelled the recent financial crisis.

Mervyn King, governor of the Bank of England, told MPs last month he would use his second term to curb the excesses in bankers’ pay that had contributed to the build-up in risk-taking by financial institutions.

“I intend the Bank to contribute to the design of regulatory and incentive structures ... to try to curb the excessive build-up of risk-taking and credit creation which was seen ahead of the recent crisis,” Mr King said.

Continue reading on FT.com

Next article » Credit Crisis: Closer To Closing In On A Near-End

Previous article « Ringgiting The Register