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* European Parliament has power to veto new rule
* Veto would force regulators to rewrite the rule
* Vote would need to be held by mid-April
By Huw Jones
LONDON, March 7 (Reuters) - European Union lawmakers willconsider toughening up the bloc's cap on bankers' bonuses afterlenders have begun softening its impact by awarding extra"allowances" to top up fixed pay.
The cap is one of the most high-profile rules from the28-country bloc after public anger over high pay at banks, manyof which were propped up by taxpayers in the 2007-09 financialcrisis.
The rule limits a bonus to no more than fixed salary, ortwice that level if approved by the bank's shareholders, andwill affect 2014 awards to be handed out early next year.
Sharon Bowles, the British Liberal Democrat chair of theEuropean Parliament's influential Economic Affairs Committee,said that some lawmakers have complained that the rule is notstrict enough.
"We are going to have a discussion on this in committee onMonday night," Bowles told Reuters on Friday.
Britain's HSBC has said it will give new"allowances" - expected to take the form of monthly or quarterlypayments in cash or shares - to senior staff to boost theirfixed pay, meaning that higher bonuses could then be awarded.
UK peers Lloyds and Barclays this weekindicated that they would follow suit.
REWRITE POSSIBLE
The European Banking Authority (EBA) wrote the rule, but theEuropean Parliament has the power to veto it and force arewrite.
"In one sense it does not help if people believe that whatthey have done is being circumvented," Bowles said, adding thatthe only option may be to reject the rule.
The EBA watchdog is already reviewing planned allowances tosee if they comply with the new law and the Economic AffairsCommittee will meet on the sidelines of a full parliamentsession in Strasbourg, France.
Britain, meanwhile, is challenging the bonus cap in theEuropean Union's top court, arguing that the rule will make itmore difficult for lenders to cut costs when required because itencourages higher levels of fixed pay. Bonuses, meanwhile, canbe cut or withdrawn easily.
The European Parliament will have to vote on any proposal bymid-April, after which it goes into recess ahead of its Mayelections.
Bowles said that if the new rules are rejected, it couldmean that nothing would be in place before bonuses are dishedout early next year.
"The UK would be able to apply a lighter regime if itwishes," Bowles said.
While acknowledging that the banks' extra allowances "aregoing to be be paid come hell or high water", Bowles added thatthey should be viewed as fixed overheads that need to be coveredby capital reserves and that shareholders should considerwhether they are too high.
