BIS warns EU banker bonus cap may increase risk instead of reducing it

The EU’s signature post-crisis rule for taming Wall Street-style excess in banking may have accomplished the opposite of what it set out to do. Research from the Bank for International Settlements argues that capping banker bonuses didn’t curb risk-taking. It may have quietly encouraged it. The EU’s bonus cap, implemented in 2013-14, limits variable pay for bank employees classified as “risk-takers” to 100% of their fixed salary. With shareholder approval, that ceiling rises to 200%. The idea was elegant in theory: tie compensation more tightly to outcomes, and bankers would think twice before swinging for the fences with other people’s money. The BIS research, published on September 14, 2026, identifies a fundamental flaw in that reasoning. When banks can’t use bonuses as the primary carrot, they compensate by inflating base salaries. Those higher fixed salaries act as a kind of insurance policy for managers. They get paid handsomely regardless of whether their projects succeed or fail. That dynamic creates what economists call a moral hazard problem. A manager earning a massive guaranteed salary still gets a bonus if a risky project pays off. But if the project tanks, the fixed p...