The rancor over bank bonuses means investment bankers across the globe are now getting a higher level of fixed pay but industry groups in Europe still feel their financial sector is facing much tougher rules than the rest of the world.

In response to the political outrage and regulatory scrutiny, many global banks have drastically restructured investment bankers' pay packets with a large portion of their overall compensation now being in deferred form. Bankers, regulators and industry lobby groups that attended the Reuters Future Face of Finance Summit this week were of the view that the industry has turned more realistic after getting blinded by excessive greed during the heady days of pre-crisis. To my mind, we are kind of getting back to a sensible place, John McCormick, Asia-Pacific CEO of RBS said.

There is no right to a bonus, these are all discretionary, he added.

Industry groups in Europe, however, feel that their banks are now facing a much harsher set of rules for bonuses than their U.S. and Asian counterparts, raising the risk that they lose their strongest talent.

In the industry, bonuses now account for just about 20 percent of the overall compensation, a far cry from the pre-crisis days when up to 80 percent of the total pay was in cash and stock bonuses.

But bonus curbs seen as the toughest in the world took effect in the 27-country EU bloc last month. They go further than the G20 principles by setting in law specific limits for cash elements and periods for deferral.

America has been slower to impose new standards. And in Asia, the major financial centers such as Singapore and Hong Kong have moved to be in line with the G20's benchmark standards but gone no further.

The US is very broad brush, much less tight targets and clawback arrangements and in the Far East they wonder what on earth the issue is all about, said Angela Knight, CEO of the British Bankers' Association on bonuses. In effect it has almost become a British argument. I think there is a question that has to be answered -- why is it we are so obsessed with it, she added.

DWINDLING RETURNS

While U.S. regulators are trying to institute long-term reforms at banks, those have paled in comparison to Europe's.

Sheila Bair, chairman of the Federal Deposit Insurance Corp, told the summit that banker pay is very tough to regulate, adding that the United States has made some progress by proposing that banks defer bonus payments.

I think it has gotten better. I don't know if it is fundamental reform, she said.

Andrea Enria, chairman of the new European Banking Authority, warned that if reforms don't become consistent soon, there was a big risk of financial centers competing on rules.

I think we should give high priority to this work to achieve results quite fast. This is an area where regulatory competition could be very damaging, Enria added.

But while many global banks doled out lower bonuses last year, the rise in fixed pay means cost-to-income ratios for many institutions are relatively high, which analysts say is a worrying sign given the new capital constraints they're facing.

Banks are warning of significantly lower returns on equity as they are required to hold much more capital under the new Basel III rules. Earlier this week HSBC cut its profitability targets as a result of the new regulatory regime. So while banks will still pay up to retain their top talent they are mindful of the changing landscape. When revenues come down, bonus pools come down. That is the case with RBS and that is the case with many banks I am aware of, McCormick said. This means many industry watchers say there is an increasing risk that more bankers move to the less regulated sectors such as hedge funds and private equity. Certainly you do have a situation where there are banks who have very different remuneration policies... it is likely and possible that the recruitment and retention of key people may be more challenging but that is a fact, said Simon Lewis, CEO of Association for Financial Markets in Europe.

(Additional reporting by Huw Jones in London and Dave Clarke in Washington; Editing by Muralikumar Anantharaman)

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