By Huw Jones
LONDON, Oct 22 (Reuters) - Britain's financial watchdog will take unspecified action against banks that channel profits into bonuses rather than build up capital, it said on Thursday.
Banks will be required to update the Financial Services Authority in coming weeks about their remuneration policies as the 2009 bonus round nears.
"We need to look at those figures and we will be talking to the banks as to whether those accruals they are making at the moment are compatible with the level of capital build up which we believe is appropriate," FSA Chairman Adair Turner told reporters.
"If it is not we will be engaging in full and frank discussions with them about those, either in relation to the level of those bonus accruals or the form in which they are paid," Turner said.
"That is very much part of our supervisory discussions with the major firms at this moment."
There are signs bonuses are heading higher again despite many banks needing government support.
The Centre for Economics and Business Research said this week payouts in the UK would hit 6 billion pounds in this year's bonus round, up by half from 4 billion in 2008 but still well below the 10.2 billion paid in 2007.
Some policymakers fear momentum for regulatory reform is ebbing as bank profits recover and economies stabilise.
His comments come as the U.S. pay czar Kenneth Feinberg is
expected to order sweeping pay cuts at several banks and
automakers that have received taxpayer bailouts, including AIG
Turner said he would not regulate the level of bonuses for their own sake but the watchdog has a "range of levers" it would consider using if banks were failing to top up capital.
Many of the major banks were turning in handsome profits from relatively low risk trading activities, he added.
"We are very closely checking that... We are keeping a very close eye to make sure we don't think there is a resurgence of the risky activity the led to some of the problems," Turner said.
"We have to get large trading banks up to a level of capital such that even in conditions of macro economic stress, there is not going to be the sort of collapse of confidence we saw last year," Turner said.
His comments reflect the agreement reached among the G20 group of leading countries in September requiring banks to prioritise the use of surplus cash for building up capital rather than paying dividends or bonuses.
The G20 also agreed capital levels must rise and that bank pay packages must be structured so as not to encourage excessive risk taking.
"We know there are going to be future higher capital requirements, that's absolutely clear and they are going to be significantly higher," Turner said.
(Reporting by Huw Jones, editing by Victoria Main)