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EU's Barnier defends bankers' bonus cap

LONDON, Oct 17 (Reuters) - Capping bankers' bonuses will ensure lenders manage risks properly and Britain's legal challenge was unfounded, the European Union's financial services chief said on Thursday.

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

EU financial services commissioner Michel Barnier told the British Bankers' Association annual conference in London, where most of the bankers hit by the cap are based, that he regretted Britain had gone to the top EU court.

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

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

Top lenders across the EU face a third stress test and accompanying balance sheet assessment next year, raising concerns that more capital holes will emerge.

Barnier said "despite what some continue to say, large European banks are as well capitalised as their American counterparts."

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

Banks with shortfalls will need to reduce their assets or tap 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 clear framework in place, with bail-in, and national and if necessary European backstops," Barnier said.