Twice a year, the chairmen and chief executives of Europe's biggest banks gather in secret for a chinwag about matters of collective interest.

They meet under the auspices of a hush-hush club formed after World War II, whose operations are so mysterious that even the grandees who attend it seem unclear what it's really called.

One bank supremo told me its name was the Instituts d'Etudes Financieres or some such; another that it went by the moniker IIEB.

Either way, what I can tell you is that it attracts a pretty high calibre of banker - and that its last meeting was just a few weeks ago at the plush London hotel, Claridges, where the main item on the agenda was the topical question of bankers' bonuses.

Present were - inter alia - Stephen Green of HSBC, Philip Hampton of RBS, Marcus Agius of Barclays and David Mayhew of JP Morgan Cazenove, and their counterparts from Germany, Italy, France and so on, including the grands fromages from Soc Gen and BNP Paribas.

Now, let's be clear: the idea that banks would ever collude to solve a mutual problem would be an outrageous and unwarranted slur. Collusive tendencies may have been in bankers' DNA two decades ago, but these days (who can doubt?) it's all about compete or die.

That said, they would dearly love a collective agreement to cease hostilities on bankers' pay, because they know there is a one-to-one correlation between each million pound bonus they pay and damage to their reputations.

But although they explored whether they could reach an entente on capping bankers' pay, they abandoned the ambition as a hopeless cause. Why? Because they can't get the Americans into the room.

This is what the head honcho of one giant bank said to me:

"The Americans will never agree to put a limit on bonuses. They regard it as a fundamental right to pay as much as they like. And if we cap our pay here in Europe, while they operate in the free market, well we'll all be dead."

Funnily enough, I heard a very similar lament from a senior member of the government the other day, who told me that the great failure of the recent G20 meetings of the world's most powerful governments is that they didn't agree a moratorium of at least a year on all bonus payments by banks.

As he said, there's a very strong intellectual case for saying no bank should pay a bonus for 2009, which is that:

a) none of them would be alive today in the absence of that $15 trillion bailout I've been boring on about, and

b) a vast proportion of their 2009 profits stem from the exceptional measures taken by governments and central banks to minimise the impact of a recession precipitated (in part) by banks' greed-fuelled recklessness.

So surely world leaders could have won a good deal of popular support, while not committing a heresy on the religion of capitalism, by simply instructing their banks that all their more senior employees would have to rub along on their six figure salaries for a year, with no bonuses paid.

Why didn't this happen? "The Americans would never sign up", says my well-placed informant.

Which is a bit odd, because in the US right now "Goldman Sachs" is a byword for qualities (in the public mind at least) that most of us would rather not have.

One consequence of this failure to put in place an official bonus hiatus is that our chancellor of the exchequer finds himself in the hideous position of having to either approve Royal Bank's planned bonuses of between £1.5bn and £2bn, or veto them and risk seeing the RBS board announce a collective intention to resign (see my note of yesterday).

So what is the going rate for RBS's top profit generators? Well last year, when the bonus pool was £900m for the investment bank, several hundred of its executives earned more than a million pounds each.

At the top end, an RBS currency trader in New York (at its Greenwich subsidiary) took home $20m and a commodity trader (in a joint venture that's now being sold) was paid $40m.

The past year has been a bumper one for forex and government bonds, which are the areas where RBS is particularly strong. So quite a number of its top traders will be expecting $10m plus.

And let's not kid ourselves that RBS would be paying this out of some act of charity. It in fact would argue that it doesn't pay top dollar.

Here is what many bankers have told me that they regard as extraordinary: it was Alistair Darling's choice to become the grand arbiter of how many forex traders can take home a seven-figure wedge (does he wear a hair shirt, as well?).

Even though the state (that's us) owns 70% of RBS (rising to 84.4%, in an economic sense), the chancellor didn't have to take direct responsibility for what the bank pays out in bonuses.

He could have maintained the not-quite fiction - or what he has argued for a good year - that RBS is an independent commercial entity, and the Treasury is more-or-less just another shareholder among many (albeit a humungous shareholder).

Or to put it another way, he could have said what is actually true in company law and the stock exchange listing agreement, that bonuses are a matter for RBS's board.

But presumably he didn't think that would wash with voters, even if it's actually true. So he insisted, when agreeing to recapitalise RBS (yet again) through the Asset Protection Scheme, that he would take a formal new power to authorise the total amount of bonuses paid and also the form of the bonus payments.

Form will be less problematic: RBS has already agreed, under pressure from the Financial Services Authority, that most of the payments will be in shares and that recipients will not be able to get their mits on all the shares till a number of years have elapsed.

But size of the so-called bonus "pool" will not be uncontentious. As I mentioned yesterday, Royal Bank has told Alistair Darling that it would intend to pay about 50% more in bonuses than last year in its investment bank, or between £1.5bn and £2bn in bonuses for the bank as a whole.

And its reasoning is simple: considerably more than that, it believes, would be wiped from the value of the organisation in a permanent sense, if it were not tot pay competitively and if its top profit-generators were to desert to competitors.

Which is why the directors received unambiguous legal advice that if they were prevented by the chancellor from fulfilling their duty (their fiduciary duty) by providing the rewards commensurate with preserving the wealth of the shareholders, they would have to quit.

It is clear that earlier this year, the Treasury accepted the argument that RBS had to pay the going rate. When RBS announced in February that it had reached agreement on its approach to pay and rewards for 2008-9, a press release from the bank also said that the government had conceded that the bank would pay "competitively with other international banks" for the current year.

What is unclear is what status that agreement now has, in the light of the chancellor's new power to approve or veto bonuses. Arguably, it may limit his ability to block payments he deems excessive.

To state the obvious, it is a mess, and surely only the hardest hearted would fail to feel a scintilla of sympathy for the chancellor, in this nightmarish predicament of his own making, should he sanction the twenty million dollar payments, or muller the bank? What a choice.

Update 16:20: Just in case anyone doubts Royal Bank of Scotland's contention that pay is a highly competitive issue for all banks, Barclays is proving its rival's point - by whacking up the non-variable element of the remuneration of staff at Barclays Capital, its investment bank.

This will lead to pay increases of around £75,000 per year for large numbers of its executives, according to sources - who don't shy away from the notion that some staff will receive 50% pay rises

What's more, the pay rise is back-dated to earlier this year, so will generate a tidy cash lump for thousands of employees - which is handy given that cash bonuses at all banks (as opposed to bonuses paid in shares) have been squished as a result of the international agreement reached by G20 governments earlier this autumn.

Barclays' line is that it has to do this, because its rivals have already increased the base salary of their executives and therefore Barcap was finding it difficult to attract or retain staff.

What's more, Barclays claims that by pushing up salaries it is only doing what G20 governments have asked it to do, by shifting the weight of pay from the variable portion (called bonuses in normal language) to fixed.

Mind you, I don't suppose ministers would have wept if Barclays had achieved the same outcome by slashing bonuses rather than hiking up fixed pay.

Presumably Barclays has not timed this pay rise to lend weight to Royal Bank's argument with the Treasury that it has to pay whopping bonuses to maintain the viability of its investment bank.

That said, Royal Bank's directors may well be sending their oppos at Barclays some super-duper Christmas hampers.