Feb. 18--The bonus issue has been a huge distraction for the government as it has sought to stabilise the banking system.

So it will come as something of a relief that the government and Royal Bank of Scotland have managed to reach a pact which could serve as a model for the part-nationalised banks.

Bonuses this year will be restricted to £175m, a reduction of 90pc in cash payouts. There will be no rewards for staff associated with major losses.

Nevertheless, it is not entirely clear that the deal signed off by Chancellor Alistair Darling is good enough.

After all, RBS made a colossal loss of £28bn last year (with goodwill writedowns) and one must seriously question whether any cash bonuses are deserved at all.

Similarly, the idea that vital staff, who might leave, could receive deferred bonuses also sticks in the craw.

It is not as if there is anywhere to go -- even for the most talented bankers -- seeing as most of their competitors are shedding jobs in the thousands. There is also an assumption that somehow people lower down the pay scale should be exempt from a bonus freeze and receive their 10pc uplift. This also is disputable.

After all, no one working for RBS, or any of the banks, is innocent in this credit crisis.

Customers are continuously being sold services which are not needed as a result of a foolish target and incentive culture.

Staff have been trained to hit product sales goals which are often unsuitable for the customers concerned and contributed greatly to the bubble.

At a time when the foolishness of the bankers has placed so many other jobs on the line, it is hard to justify any payments at all.

Simply hanging onto jobs, after making a whopping great loss, ought to be good enough. One of the key mistakes which the government made, when it recapitalised the banks, was to bargain with them and allow individual deals.

This has proved a recipe for chaos. Lloyds, for instance, thinks it won the right to pay bonuses.

The price of taking capital provided by taxpayers, or through government borrowing, ought to have been the same for everyone.

That would have killed the issue once and for all and left bankers searching for alternative new capital if they were not willing to accept the new order.

No doubt RBS bosses Stephen Hester and Sir Philip Hampton have sought to come up with the most equitable deal possible.

But a loss-making, publiclysupported bank should not be making any payouts at all in a period when the wealth of the owners of the bank -- the shareholders (including our pension funds) -- have been decimated.