James Moore: The contract crackdown is just hot air

The FSA's oncern is the way in which people are paid and what they are paid for

So the Financial Services Authority is to get the power to rip up the contracts of bankers if they look like they offer too much financial encouragement to indulge in casino capitalism. It's going in the Queen's Speech and everything. "Look, look, voters, we're doing something about those dreadful bankers and their big bad bonuses."

Yes, the Government and its spin doctors have come up with yet another great way to generate some headlines with the aim of convincing the voters that New Labour is tough on bonuses, tough on the causes of bonuses in the run-up to the election. Is this the second or the third or the fourth weekend in a row something like this has leaked out?

It helps no end that the City has kept the pot boiling by appearing have fallen for it hook, line and sinker. So yesterday the ether was filled with loud denunciations of the Government's plans. Naturally, the British Bankers' Association was first out of the stalls, warning that such a measure will put British competitiveness at risk and (potentially) that "talent" might react by heading overseas.

Then there was Sir George Mathewson stepping up to the plate in the guise of "banking grandee" to warn about the "dangerous path" down which we will be travelling if legislation that would "interfere with the rule of law" were to be adopted.

You might just remember Sir George. He was the chairman of Royal Bank of Scotland until just before the financial crisis, and then worked for the hedge fund Tosca, which played an active role in the latter's disastrous takeover of ABN Amro.

Sir George really should have the grace to keep his counsel for his friends on the golf course. Most people would be forgiven for thinking "go get 'em, boys," when he suggests that an idea to squeeze bankers is a bad one. The same goes for the BBA these days, given its fondness for defending the indefensible.

But look a little more closely and you realise there's more spin than substance behind this wheeze. It may well find itself on the statute book, but whatever legislation results will probably end up like those daft laws from the Middle Ages that were technically enforceable for years but which no one in their right mind would have ever thought to use. These were the sort of laws that required every Englishman to keep 12 arrows sharp and true on pain of a weekend in the stocks, or which made it legal to shoot any Welshman venturing into Shropshire with one of them.

For a start, it's difficult to see how the regulator would be able to tell how a densely worded employment contract encouraged "undue risk taking" short of hiring a phalanx of employment lawyers at vast expense.

And the watchdog has, anyway, already told the banks that if they try to renege on agreements that demand payments are partially deferred, paid in shares and a subject to clawback, then they will regret it.

The signs are that (at least for the moment) this is a warning they are heeding after a few remarkably stupid incidences of "back to business as usual" emerged.

The idea may also be creating dangerous expectations about the FSA cracking down on the amount bankers are paid, which is really what bothers people. The watchdog can't really do much about that, and doesn't really want to. Its concern is the way in which people are paid and what they are paid for. So bankers are going to go on making a ridiculous amount of money, they just might have to wait a little longer to get their hands on it. This latest package of measures trailed by the Government will do little to change that.

And ultimately, quietly, some of the more ruthless banks might find that they are rather keen on the principle that they might be able to worm their way out of obligations that they have entered into, with the regulator's help. Because if that principle can be applied to the pinstriped whizzkids on the trading floors, it can also, very easily, be applied to the poorly paid individuals in the branches, who always seem to be the losers these days.