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UK government back tracks on banking bonus cap

Alistair Darling will backtrack on UK government plans to place a ceiling on banking bonuses with a move to introduce a five-year deferral period. While this is significantly longer than the three years which is currently under consideration by the Financial Services Authority (FSA) it falls well short of the French government's call for a cap on all banking bonuses. This causes yet more confusion in the UK marketplace and more friction between the government and the financial services industry.

As the CBI recent commented, there is an unhealthy obsession with banking bonuses when in reality the main problem at the moment is the reduction in liquidity in the UK marketplace. Even though mortgage agreements have increased over the last few months they are still well short of the recent highs prior to the recession. It is difficult to tell whether UK banks are unable to increase liquidity or unwilling to increase liquidity because ultimately there has been little constructive discussion between UK government and UK banking sector of late.

Much of the friction has been caused by press briefings and comments "behind-the-scenes" which are seen as another way to increase the pressure on the banking industry. Will the G20 make a difference this time?

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