A cap on bankers’ bonuses will do little to reduce risk-taking in the banking industry.

A provisional EU agreement has been reached on the principle of capping bonuses in the European banking industry. Kent Matthews and Owen Matthews present a case for maintaining bankers’ bonuses, arguing that there is no causal link between bonuses and excessive risk-taking. They state that the real cause of risk-taking is the widespread policy of bailing out banks which are deemed ‘too big to fail’, and that capping bankers’ bonuses might simply drive business away from Europe towards other global financial centres.