UPDATE 1-BoE's Bailey: too late to revise allowances for 2014 bank bonuses

(Adds more detail, comments)

By Huw Jones

LONDON, Oct 22 (Reuters) - It is too late to change theallowances paid to top banking staff that have been deemed tobreach European Union law, a senior Bank of England officialsaid on Wednesday.

The EU's banking watchdog, the European Banking Authority(EBA), said on Oct. 15 that "role based" allowances being paidby banks were nearly all in breach of the bloc's cap on bankerbonuses.

Bonuses have been capped at no more than fixed salary, ortwice that amount with shareholder approval, and banks hadargued the allowances were part of fixed pay. Britain ischallenging the bonus cap in the EU's top court with a rulingexpected sometime in early 2015.

Andrew Bailey, BoE deputy governor and chief executive ofthe Bank's Prudential Regulation Authority (PRA), said it wasimportant for banks to read the EBA's opinion and decide how bigthe differences are between the structure of their allowancesand what the EBA has said.

"We will discuss that with them and then the banks need toform a view on what they will do," Bailey told the UKparliament's Treasury Select Committee.

Barclays, HSBC and Standard Chartered have said they are among those paying allowances orplanning to. About 10,000 bankers, mainly in London, receive theallowances, according to industry estimates.

"It is a non-binding opinion and there has to be a decisionon what we do with it," Bailey said of the EBA's comments.

"My own view is it is too far into this year as a matter ofgood practice to change anything this year," he added.

The next round of bonuses, covering performance for 2014,will be paid in early 2015.

The EBA was asked by the EU's executive European Commissionto see whether the allowances were simply a ploy to soften theimpact of the bonus cap by bumping up fixed pay.

The EBA is due to formally revise its remunerationguidelines for bankers, which are more binding, and which wouldtake effect in early 2016 on bonuses awarded for 2015performance.

Bailey reiterated the UK view that the cap is "bad policy"as it leads to a rise in fixed pay, making it harder for banksto rein in costs to maintain capital levels when markets turnsour.

As an EBA board member, he said he did not vote in favour ofthe opinion on allowances -- the EBA had told journalists therehad been unanimous backing but later corrected itself afterBailey contacted the EU watchdog.

"It's appalling behaviour on their part isn't it? It's notan accident is it?" Treasury Committee chairman Andrew Tyrietold Bailey. "Were you alone? Were you isolated? Were you a lonevoice?"

Bailey declined to say if other EU states also opposed theopinion on allowances, but agreed to a lawmaker request to askthe EBA to explain its "miscommunication" to the press.

SIMPLER RATIO?

The committee has pressed the PRA to impose a leverage ratioon banks that is higher than the 3 percent interim levelproposed by the Basel Committee, a body of global regulators.

It measures the amount of capital a bank holds in relationto total assets and is seen as a safeguard against potentialgaming by banks of how they use a more complex system of riskweights to calculate their core capital buffers.

The BoE has been criticised for proposing a complex methodof setting a leverage ratio which takes into account theeconomic cycle.

Next week the Bank will publish the ratio it wants lendersin Britain to reach, which is expected to be higher than 3percent and Bailey hinted it may also streamline its structure.

"My view is it's sensible to keep the leverage ratio assimple as you can," he said. "Most of what you learn about theleverage ratio you learn from a relatively simple form of it." (Editing by Elaine Hardcastle and Mark Potter)