As banks slash risk and struggle to raise capital to meet tough new banking rules, Credit Suisse said its new bonus program would help meet bonus expectations for its staff while allowing the bank to reduce its holdings of risky assets.

"We believe it is a good instrument that will support both the firm's strategic transition by helping reduce risk and pay a good return for employees in most scenarios," the Credit Suisse memo said.

This is the second time the bank has transferred risky assets from its balance sheet to its bankers via the deferred portion of their bonus, allowing the bank to free up capital.

The new instrument is known as PAF2, a throwback to the bank's original Partner Asset Facility launched three years ago, which linked most top executive bonuses to some $5 billion in illiquid assets that had tumbled in value in the credit crisis.

And early this year, some senior managers at Credit Suisse were reported to have bought $450 million of fixed income assets in the bank's Extended Partner Asset Facility which closed on December 31.

Unlike the original PAF instruments, which were structured on leveraged loans and mortgages and have risen significantly in value since being awarded, the new instrument will pay a fixed annual coupon and is not expected to fluctuate wildly in value.

The PAF2, which vests in March and matures in nine years - although the bank has the option to buy it back after four years - will pay a 5 percent coupon for Swiss franc holders and 6.5 percent in U.S. dollars for holders elsewhere.

Credit Suisse will own the equity, or lowest-rated, part of the portfolio, and will absorb the first $500 million of losses, if any, in the portfolio, with further defaults eating into the principal, reducing payouts to bankers at maturity.

(Editing by Mark Potter)

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