The British Bankers' Association has told the Governor of the Bank of England not to comment publicly on City pay after Mervyn King criticised salary packages.

At the same time, Lord Jones of Birmingham, the Trade Minister, rejected calls in Parliament for a cap on bonuses, which he said would drive top executives abroad.

Angela Knight, chief executive of the BBA, told a meeting of company treasurers yesterday that, while Mr King was right on some points, it was not helpful to argue about executive compensation in the public eye. “This is a financial services industry on which a lot of jobs are hanging,” she told the ACT annual conference. “I don't think we should have the luxury of public squabbles.”

Mr King told the Treasury Select Committee on Tuesday that compensation structures had encouraged a dangerous level of risk-taking. “Banks have come to realise they are paying the price for having designed compensation packages which provide incentives that are not, in the long run, in the interests of the banks themselves,” he said. The City paid about £7.2 billion in bonuses last year.

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Executives' pay was also discussed in the House of Lords, where Lord Borrie, the Labour peer, asked if the Government would consider a salary cap along the lines of proposals being discussed in Germany.

Baroness Deech, a crossbencher, called for an investigation into the tax and pension benefits of payments to stop the growth of the “bonus culture”. But Lord Jones said that such moves would force business leaders overseas.

Mr King is the second prominent figure to criticise bank pay recently. Last week Richard Lambert, Director-General of the CBI, said that there was a misalignment between the interests of bank executives and shareholders. He said that bankers in pursuit of quick profits took risks with investors' cash that they would not have done with their own.

UBS admitted this month that its bonus structure contributed to its $37.4 billion in sub-prime losses.

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