EU's Barnier defends bankers' bonus cap


LONDON, Oct 17 (Reuters) - Capping bankers' bonuses willensure lenders manage risks properly and Britain's legalchallenge was unfounded, the European Union's financial serviceschief said on Thursday.

Britain is challenging the cap in the European Court ofJustice, arguing that limiting a bonus to no more than fixed payfrom 2014 - or twice that amount with shareholder approval -will make banks riskier by pushing up fixed pay.

EU financial services commissioner Michel Barnier told theBritish Bankers' Association annual conference in London, wheremost of the bankers hit by the cap are based, that he regrettedBritain had gone to the top EU court.

"I remain confident that the measures are balanced andreasonable, in the interests of financial stability. And thatour legal basis is the right one," Barnier said.

Many European banks had to be shored up by taxpayers duringthe 2007-09 financial crisis, triggering public anger thatbonuses were still being paid in some cases.

Top lenders across the EU face a third stress test andaccompanying balance sheet assessment next year, raisingconcerns that more capital holes will emerge.

Barnier said "despite what some continue to say, largeEuropean banks are as well capitalised as their Americancounterparts."

"Despite substantial improvement, more needs to be done onthe quality of banking assets. We don't expect dramatic results.But of course, these exercises may throw up certain fundinggaps," Barnier said.

Banks with shortfalls will need to reduce their assets ortap markets, he said.

"If banks are not able to raise capital in the markets -which could still be the case for a few - we will have a clearframework in place, with bail-in, and national and if necessaryEuropean backstops," Barnier said.

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