Bumper payouts to bankers should be seen as part of a longer term investment in London's economy, the vice chairman of Goldman Sachs International told a debate on ethics at St Paul's Cathedral on Tuesday.

Defending lavish bonuses expected at the U.S. investment bank, Brian Griffiths said he was not ashamed of his bank's compensation package, which has inflamed the bonuses debate.

The British public should tolerate the inequality as a way to achieve greater prosperity for all Griffiths said at the public meeting examining what role morality should play in the marketplace.

Goldman last week reignited the row over excessive compensation after setting aside $5.4 billion for pay in the third quarter alone. It is on course to pay out $20 billion this year, infuriating critics so soon after repaying $10 billion in taxpayer bailout funds.

Griffiths said that if bonuses were capped the industry's highest fliers would leave London's financial services sector for other countries.

I believe that we should be thinking about the medium term common good, not the short term common good... we should not, therefore, be ashamed of offering compensation in an internationally competitive market which ensures the bank businesses here and employs British people, he said.

He also said Goldman only rewarded those who showed a commitment to company values and not simply to whoever brings in the most profit.

The comments by Griffiths follow Credit Suisse's announcement on Tuesday that it would make executives wait three to four years for their bonuses, as a way of limiting excessive risk taking.

Also at the St Paul's debate, the chair of Britain's financial regulator said such new policies do not necessarily guarantee protection against risky behavior, if banks believe their own propaganda.

This will make some difference, but I don't think we should imagine this a magic panacea or silver bullet, said Financial Services Authority Chairman Adair Turner.

When you have irrational exuberance, even people who are paid in a deferred fashion with clawback believe their own propaganda, Turner said.

If people believe their own propaganda they will believe that that future deferred equity is there -- even if it isn't at the moment. So -- yes we can make some difference -- but we have no panacea in this regulation approach, Turner said.

Last month leading G20 countries agreed compensation reforms, including subjecting awards to clawback and deferral.

Barclays and HSBC are due to give trading updates next month, although decisions on bonuses will not be made until full-year results in February and early March.

(Editing by Simon Jessop)