The Bank for International Settlements took a fresh look at Europe's banker pay rules in its quarterly review. The team behind the analysis - Gaston Gelos, Bertrand Rime and Kevin Tracol - reported no measurable shift in risk following the EU's introduction of the cap. By contrast, after the UK scrapped its cap post‑Brexit, their metrics pointed to higher risk.
Europe's approach went further than rules in the US and other major markets, and that gap led banks to increase fixed salaries to keep their edge when recruiting across borders.
"The bonus cap can backfire: projects with a high probability of failure can become attractive," the authors wrote. "The higher fixed pay offers the manager better insurance against failure, while the bonus, even if capped, still offers some reward in case of success."
That mix matters for behavior. If fixed compensation climbs while variable pay is constrained, managers may feel cushioned on the downside and more willing to greenlight bets that carry a higher chance of blowing up.
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The design details matter too. Banks that spread bonus payouts over several years tend to show stronger risk profiles. The authors said longer deferrals "go hand in hand" alongside higher Common Equity Tier 1 ratios and with larger management buffers held above minimum capital requirements.
The headline is not "bonuses are bad" or "bonuses are good," but that incentives shape choices. In this study, capping bonuses did not lower measured risk in the EU, while paying awards over time lined up with thicker capital cushions. If you track bank stocks, it is worth noting how each firm blends salary and deferred incentives, and how much capital it holds above the floor.
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