By Huw Jones
LONDON (Reuters) - A cap on banker bonuses in the European Union has not undermined financial stability or made it harder for lenders to control costs, the bloc's banking watchdog said on Wednesday in a rebuttal of UK arguments against the pay curb.
The cap was introduced in 2014 after public anger against bankers pocketing large bonuses at a time of austerity and after taxpayers had to bail out lenders in the financial crisis.
Britain failed to stop the cap which limits bonuses to no more than fixed pay or twice that amount with shareholder approval.
The Bank of England, which regulates most of the EU's high earning bankers, has said the cap will force up fixed pay, making it harder for lenders to cut costs in a downturn and thus posing risks to financial stability.
"All in all, the bonus cap did not lead to a material reduction in the overall cost flexibility," the European Banking Authority (EBA) said in its report on pay practices.
The cap has led to a very small increase in the fixed costs and this is only in some institutions.
"The present analysis shows no indication that the so-called bonus cap has a potentially detrimental effect on institutions' financial stability," the EBA added.
The cap and other EU pay rules, such as having to defer a portion of the bonus over several years, generally apply to bankers earning 500,000 euros ($565,800) or more a year.
The EBA report showed that in its first year of application, the bonus cap was largely complied with across the EU.
Tweaks to the EU rules have led to a sharp rise in the number of so-called identified staff, meaning their pay and role in the bank bring them under the regulatory net.
EU banks employ 2.9 million staff and in 2014 there were 62,787 identified staff, up from 34,060 in the previous year.
The number of high earners, or those pocketing a million euros or more a year, increased from 3,178 in 2013 to 3,865 in 2014, with 2,926 based in Britain.
The number of high earner bankers in Germany fell to 242 in 2014, from 397 in 2013.
(Reporting by Huw Jones; Editing by Mark Potter)