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Call for clawback of Libor bankers' bonuses

TOP financial regulator Andrew Bailey has warned it is "absolutely vital" for banks to claw back bonuses in response to the Libor interest rate scandal.

Meanwhile, Bank of England Governor Sir Mervyn King said any attempt by investment banks to postpone bonus pay-outs until the 50p tax rate drops to 45p in April would be "clumsy".

Mr Bailey, managing director of the Financial Services Authority's prudential unit and an executive director of the Bank of England, said: "There was clawback last year. I can safely predict there will be clawback this year. It is absolutely vital. Otherwise people get away with it."

It is understood part-nationalised RBS is planning to use a mixture of bonus reductions for last year and claw-back of previous pay-outs to recoup around £100 million from traders involved in the scandal.

Referring to RBS's plan, Mr Bailey told a hearing of the Treasury committee of backbench MPs: "As the remuneration round comes to a conclusion I would expect that to come to fruition."

According to a report yesterday, RBS might pay as much as £500m in fines, as early as next week, to settle allegations its traders tried to rig interest rates, such as the London Interbank Offered Rate.

This is more than the £290m handed to Barclays but around half the fine doled out to Swiss bank UBS for similar failings.

RBS is considering whether to ask investment banking chief John Hourican and Peter Nielsen, the head of markets, to leave because they had oversight of the parts of the bank where the problems occurred. There is no suggestion they had knowledge of the behaviour.

Meanwhile, Sir Mervyn indirectly criticised plans being considered by Goldman Sachs to delay UK bonus pay-outs until April 6 when the highest rate of income tax drops to 45p.

"I find it a bit depressing people who earn so much seem to think it is even more exciting to adjust the timing of that to get the benefit of a lower tax rate they will benefit from in the long run to a very great extent, knowing it will have an impact on the rest of society," he said.

Reports last night suggested that Goldman Sachs has decided not to pursue the plans.

Mr Bailey agreed the final bill faced by UK banks for mis-selling pensions protection insurance and fines for Libor manipulation will amount to between £4 billion and £10bn.

"They are now a considerable headwind on the path to internal capital generation," he said.

The Bank of England's financial stability committee, on which both Sir Mervyn and Mr Bailey sit, has said banks have to raise more capital although it has yet to specify how much.

"In 2008, the idea of focusing efforts on recapitalising the banking system was a UK idea. We got there first," Sir Mervyn said. "Like many UK ideas, the Americans developed it faster and better. And we would have done better at that point to have done more.

"I think we are now suffering from the consequences of not having done that. "

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