BoE's Cunliffe says banks may have to cut pay

LONDON, Oct 20 (Reuters) - Banks may have to cut pay becausethey are unlikely to see again the high rate of returns theyenjoyed before the financial crisis, Bank of England DeputyGovernor Jon Cunliffe said on Monday.

Banks saw returns on equity (RoE) of 20 percent or more inbefore the 2007-09 financial crisis. But they have now tumbledto well below half that level at many as tougher capitalrequirements bite.

The cost of capital is higher than ROEs at many lenders, asituation seen as unsustainble in the longer term. One reasonfor the low returns on assets and equity is that pay at bankshas not adjusted to smaller returns, Cunliffe said.

"Banks' pay bills have been taking a larger share of asmaller pie, relative to shareholders. That may reflect theexpectation that returns in banking are set to increase infuture," Cunliffe told a banking conference at Chatham House.

The BoE's Prudential Regulation Authority supervises howmuch capital banks must hold.

"It is important, in seeking to restore returns, that banksand investors do not think in terms of 'back to the future',"Cunliffe said.

"With less leverage and more liquidity in banks, requiredreturns ought generally to be lower than prior to the crisis.Trying to offset that by taking excessive risk or evadingregulation will not, I think, be tolerated in the new world,"Cunliffe added. (Reporting by Huw Jones; Editing by Larry King)