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Mr Cuomo, who has been investigating compensation paid by the banks since last October, said that employee pay “has become unmoored from the banks’ financial performance”.

“There is no clear rhyme or reason to the way banks compensate and reward their employees,” said the report, which chimes with remarks by President Obama’s spokesman earlier this month.

President Obama does not believe that big pay packages are necessary to keep talented staff, the President’s spokesman said.

Mr Cuomo’s report recommends that firms should follow “a more principled” bonus system to make them less susceptible to poaching of their employees by other firms offering higher pay.

The report targeted Goldman Sachs, Morgan Stanley and JPMorgan Chase, saying that bonuses were “substantially greater” than the banks’ net income.

Goldman earned $2.3 billion, paid out $4.8 billion in bonuses and received $10 billion in Troubled Asset Relief Program (TARP) funding, while Morgan Stanley earned $1.7 billion, paid $4.475 billion in bonuses and received $10 billion in TARP funding, and JP Morgan Chase earned $5.6 billion, paid $8.69 billion in bonuses and received $25 billion in TARP funding, according to the report

Since nine banks received a total of $125 billion last October in taxpayer money under TARP to help them survive the financial crisis, Mr Cuomo has pressed them for details on billions of dollars paid to executives amid huge losses.

He said that his office studied historical financial filings and found that at many banks compensation increased in the 2003-2006 bull market years, but stayed at those stratospheric levels as the mortgage crisis and recession hit.

“Thus, when the banks did well, their employees were paid well. When the banks did poorly, their employees were paid well. And when the banks did very poorly, they were bailed out by taxpayers and their employees were still paid well.

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In early trading on Monday, the index of blue-chip shares was up 16 points, or 0.4pc, remaining just below the 4,600 mark.

Shares in Britain are emulating gains around the world, with the Dow Jones index in the US climbing above 9,000 points for the first time since January last week, and the Nikkei 225 Stock Average recording its best run of gains since 1988.

US companies have reported better-than-expected earnings in recent weeks, surprising investors and triggering more buying. feet.

Some Wall Street banks have also reported bumper profits, boosting confidence in the financial sector which was behind much of last year’s market decline.

Leading the gains on the FTSE were Financial Times publisher Pearson, which was up 7.6pc to 652p after reporting a first-half profit, and mining companies Lonmin, up 4.6pc to 1,300p and Antofagasto up 3.9pc.

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The US Mortgage Bankers Association yesterday highlighted the fragility of the US housing market, reporting that 12pc of homeowners are either behind on their payments or facing foreclosure, the highest level since records began.

Almost 6pc of “prime” borrowers are in arrears, showing how far the crisis has moved beyond the sub-prime. Most arrears are caused by job losses. The US unemployment rate has reached 8.1pc, and is even higher under older definitions, running at 15.8pc under Clinton-era metrics.

It is unclear why US bond yields have spiked so violently, with spill-over effects on gilts and bunds. One camp of investors is worried that inflation is rearing its ugly head again: others fear a sovereign debt crisis as over-extended states loses their AAA ratings.

The US is at the front of the firing line. Beijing is clearly losing its patience with the Fed’s policy of printing paper, seen as a form of stealth default. There is some risk that further moves to step up quantitative easing could cause China to boycott US Treasury auctions. China and Japan together hold 23pc of all US federal debt.

The contents of this blog are for information purposes only. It is not intended as a recommendation to trade or a solicitation for funds. The Wise Money Blog cannot be held responsible for any loss or damages arising from any action taken following consideration of this information.

The European Central Bank has cut interest rates a quarter point to a record low of 1pc and embraced quantitative easing (QE) for the first time, catching markets off guard with plans to buy €60bn (£53.5bn) of covered bonds.

The hotly-disputed move to purchase assets brings the ECB into line with the central banks of the US, Britain, Japan, among others, that have begun “printing” money to stave off debt deflation.

The step-change in policy follows an open clash within the ECB’s governing council over its handling of Europe’s worst slump since World War Two, pitting national governors from southern Europe and Ireland against the ECB’s German-led hawks. Bundesbank chief Axel Weber has fought a rearguard battle to head off QE, calling it an “undesirable option” that risked inflation later.

The majority also overruled his insistence on a 1pc “floor” for interest rates. Jean-Claude Trichet, the ECB’s president, said the bank had not ruled out further cuts, “depending on future circumstances”.

The refusal to accept Frankfurt’s lead is a turning-point for ECB, which inherited its authority a decade ago from the Bundesbank. The upsets touches on a raw nerve in Germany where critics have always suspected that EMU would turn “soft”. It may set off a political backlash.

The ECB also extended its liquidity scheme from 6 to 12 months and opened its window to the European Investment Bank, giving it a new crisis role.

David Marsh, author of The Euro – The Politics of the New Global Currency, said the ECB is loath to follow Anglo-Saxon banks in purchasing government bonds because this would give most help to big debtors such as Greece and Italy. “They don’t want to be seen as bail-out merchants by acting as a bond purchaser of last resort for hard-pressed nations,” he said.

The IMF says Europe’s banks have written down just 17pc of likely losses, compared to half for US banks. They may need $500bn in fresh capital. “If the IMF is correct, the risk of a credit crunch is bigger than the ECB likes to admit,” said Mr Annunziata.

The European Commission has slashed its eurozone forecast to minus 4pc and highlighted the danger off a more vicious downward spiral if “adverse non-linearities” take hold. “One cannot exclude the risk of social and political unrest,” it said.

The ECB’s policy shift is a vindication for Cypriot governor Athanasios Orphanides, a 17-year veteran of the US Fed, who has battled tenaciously for bold action.

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This is to be followed by a press conference from the Banks involved on Friday at which one would assume, they will argue their opposition to the findings. Rumours and articles abound this morning concerning Bank of America with estimates that the Bank will be ‘asked’ to get hold of $34 billion of fresh capital following the stress testing.

This is about 3 times the original expectation and raises concerns over the total amount that might need to be raised by the other 9 major banks involved. This invoked a move away from riskier currencies and perversely into the US Dollar which enjoyed an afternoon of demand. Equity markets were subdued with a small drop in the DOW recorded.

The original stated purpose of the stress tests was to increase confidence in the US banking system, but the market feels like the end result has been almost exactly the opposite.

Sterling has rallied nicely against the dollar on the back of better than expected UK services PMI data for April, which rose to 48.7 from 45.5 in March, some way above the median forecast of 46.3.

It is the highest reading since August 2008. The pound is also gaining slowly against the euro ahead of the ECB rate announcement tomorrow.

In the fx markets the overall general sentiment aside from the stress testing is still motivated by equity movements- the recent increase in risk sentiment has definitely helped any currency with yield- the AUD, NZD and ZAR all performing strongly overall recently and the USD and YEN losing ground.

Another mover has been the Canadian dollar which has appreciated 5.5% since mid April- this largely due to Canada holding off the introduction of printing money to buy up debt assets- however a strong currency will dampen the demand for exports in Canada which have already fallen sharply.

The contents of this blog are for information purposes only. It is not intended as a recommendation to trade or a solicitation for funds. The Wise Money Blog cannot be held responsible for any loss or damages arising from any action taken following consideration of this information.

UBS AG, the hardest hit European bank by subprime-related losses, sank over 7.2 percent; while Macquarie Group Australia’s largest investment bank declined 11 percent following reports that the American International Group is seeking USD 40 Billion bridge loan from the Federal Reserve. The FTSE 100 fell 122 points (2.25 percent) at around 8.30 this morning.

Lehman, once the fourth-largest U.S. investment bank, has said that it intends to file for bankruptcy after Barclays and Bank of America abandoned talks to buy the crippled firm, with Bank of America agreeing to purchase Merrill Lynch, the world largest Brokerage firm with reports it will cost them in the region of $50 Billion.

To help Wall Street prepare for Lehman’s bankruptcy, the Federal Reserve increased the collateral that it accepts for emergency loans to securities firms, which is formed of a group of 10 banks including JP Morgan Chases, Goldman Sachs and Citigroup, who have separately formed USD70Billion to ensure there will be market liquidity.

There was no surprise in the currency markets with the U.S. dollar tumbling against the majority of currencies following the weekend’s events, with the Federal Reserve launching a series of emergency measures on Sunday to calm financial markets and ease any trading disruptions the US currency took an expected downturn after weeks of significant strength.

With a week of significant economic releases we will see substantial volatility in the market.

Following this, speculation has risen that the Fed will reduce the benchmark lending rate at Tuesday’s meeting from 2 percent; it has in fact risen from a certainty that there would be no change to rates to speculation ranging between a 10-60 percent chance there will be a change.

The Australian dollar took advantage of the woes in the US by rising to one week highs following recent losses. Bond futures surged on safe-haven inflows while speculation rose on chat that the Fed could lower rates.

The contents of this blog are for information purposes only. It is not intended as a recommendation to trade or a solicitation for funds. The Wise Money Blog cannot be held responsible for any loss or damages arising from any action taken following consideration of this information.