Rather than trying to directly restrict the level of bonuses that are paid by the banks, the FSA will focus its attentions on the risk profile of the business that the banks are basing their bonuses on.
Lord Turner said that: "If we think they are in danger of encouraging people through that bonus structure to take risky actions which appear to look good at the time, but which create toxic assets for the future, then we have the power to say if you want to do that, you've got to hold a bit more capital because we think you're a more risky institution."
This means that the riskier the banks business the more capital it will have to hold in reserve, and thus the more expensive it will be for them to do business.
Lord Turner went on to say that the bonus factor should not be over stated and that other issues such as liquidity in the market will be looked at in future. "We have to go back to basics in regulatory terms to make sure this doesn't happen again in five or 10 years' time," he said.
