In a move likely to alarm high earners in the City of London and elsewhere, Michel Barnier told Reuters in an interview that new curbs on bankers' earnings were needed to avoid the risk of a backlash from the public.

Barnier's suggestion, if written into EU law, would represent one of the most intrusive regulations from Brussels since the start of the financial crisis.

"If banks are incapable of self-discipline with regards to bonuses, then we must act," said Barnier, who is the Commissioner in charge of proposing and writing the first draft of new EU law, which then goes to countries for approval.

"Among the ideas that we are exploring is a ratio between fixed salary and bonus," he said. "Another idea which could be considered is a ratio between the lowest level of pay in a bank and the highest level of pay."

Royal Bank of Scotland, Europe's biggest bank bailout of the crisis, has been criticized for setting aside 500 million pounds for bonuses, while three of Barclays' top executives had combined pay packages including long-term awards of $110 million in 2010.

Barnier will have an opportunity to discuss his ideas with leaders of finance and industry when he travels later this week to Davos, in Switzerland, for the World Economic Forum.

OCCUPY

Public mistrust of banks has grown throughout the crisis and bumper pay is blamed for encouraging the risk taking that ultimately crippled banks.

The crisis has spawned widespread protests. The Occupy movement, which went global after a sit-in on Wall Street last year, is now camping in igloos to bring its argument with the super-rich "1 percent" to Davos.

The EU has already introduced rules to limit how much of a banker's bonus is paid out in cash, in one of the most significant financial reforms yet from Brussels. EU law also insists payouts are made over up to five years.

The latest suggestion from Barnier, who has grown frustrated with what he sees as banks' continuing failure to lower pay, would go further by setting actual limits on pay.

"Politicians will find it harder and harder to explain to the wider public as some of them experience hardship why bankers get such huge bonuses," said Barnier. "If we don't regulate now, you risk a violent reaction."

Barnier, France's former foreign minister, made his remarks during a visit to London, when he also met Britain's finance minister George Osborne.

Relations between Brussels, where the European Commission sets the direction of regulation for banking and finance, and London, which fears losing its autonomy in supervising its powerful financial centre, have reached a low ebb.

Divisions with Britain place another obstacle in the way of Europe's drive to reform finance, a push some analysts believe had lost its way in the continuing banking crisis.

Displaying some his famous Gallic charm by wearing an Olympic tie -- the Games take place in London later this year -- Barnier said there is "no plot" to boost Paris or Frankfurt at the expense of Britain's financial centre.

He defended his proposal for a tax on financial transactions (FTT) which Britain opposes. "But at the end of the day, the FTT won't be imposed on the UK against its will," Barnier said.

He also dismissed talk of breaking with the internationally agreed deadline for introducing stricter Basel III capital standards for banks from 2013, after a newspaper reported that France and Germany wanted the rules relaxed.

Rules dictating how much capital banks must hold in order to be stable are central to the EU's reform of its financial system. Barnier promised the new regime would be strict and stick to the standards agreed internationally.

The commissioner also said that he would publish a draft law outlining a new framework to salvage banks in crisis within the next few weeks.

This had been delayed due to fears that one important element of the package - powers to force losses on bank bondholders - would further worry nervous markets.

Barnier also announced he would start consulting industry in the coming months on how to regulate the so-called shadow banking sector comprising hedge funds, private equity groups and money market funds.

(Additional reporting by Huw Jones; Editing by Jane Merriman and David Cowell)

By John O'Donnell and Julien Toyer