What is the banker bonus cap and could scrapping it boost growth?

theguardian.com:

The focus is back on banker pay after it emerged that the chancellor, Kwasi Kwarteng, is considering scrapping the City bonus cap as part of the government’s wider pro-growth agenda.

The cap was introduced by the EU after the 2007-08 financial crisis. It was part of a set of regulations known as the Capital Requirements Directive that were meant to force the financial sector to insure itself against the kind of weaknesses that led to the crash and a raft of taxpayer bailouts.

The package, which came into force in 2014, included a rule that capped banker bonuses at two times their annual salaries. It covered bonuses in the form of both cash and shares.

The banking sector’s bonus culture was blamed for encouraging short-term profits over longer-term stability in the lead-up to the financial crisis, with Lord Turner’s 2009 review into the crash saying bonuses may have encouraged bankers to take “excessive risks”.

Bankers were also accused of taking more cash out of businesses than shareholders, putting investors such as pension funds at a disadvantage.

The hope was that, with less of a banker’s pay riding on their performance, there would be less of an opportunity to incentivise risky behaviour.

The UK strongly opposed the legislation, with the then chancellor, George Osborne, even attempting to overturn the bonus cap at the European court of justice.

Andrew Tyrie, the former chair of the Treasury committee, who also chaired the parliamentary commission on banking standards, said a cap would not necessarily promote higher standards, which instead required “fundamental reforms” that could include longer bonus deferrals and clawbacks.

The Bank of England was concerned the cap would lead to a rise in fixed salary costs and squeeze