UK isolated as EU ministers agree bank bonus cap

05.03.13 @ 20:12

  1. By Benjamin Fox
  2. Benjamin email

BRUSSELS - London has been left isolated in its opposition to bank bonus rules, with EU lawmakers set to agree to cap payments, ignoring last minute opposition from UK finance minister George Osborne.

The new rules, set to be introduced next year, would limit bankers' bonuses to the equivalent of their salary, or two times their salary so long as shareholders agree.

Although EU finance ministers in Brussels on Tuesday (5 March) agreed to defer some technical points for further negotiation, ministers and the European Commission insisted that the substance of the deal could not be unpicked.

Internal Market Commissioner Michel Barnier said he was "crystal clear" that the bonus cap was a done deal and could not be re-opened. The era where bankers "could be paid more if they took more risks" was "finished", he stated.

Irish finance minister Michael Noonan, who chaired the talks, told reporters after the meeting that there had been a "divergence of opinion on bonuses." But he commented that the "space for further negotiation is quite narrow".

The bonus deal comes are part of legislation - also agreed Tuesday - putting in place rules on capital requirements and liquidity aimed at making the banking sector more robust to cope with future crises.

The EU's 8,000 banks would be required to hold at last 8 percent of top rated capital on their balance sheets, with so-called "too big to fail" institutions required to hold an additional 3.5 percent of capital.

Speaking earlier on Tuesday, Osborne said the bonus agreement "will push salaries up, it will make it more difficult to claw back bankers' bonuses when things go wrong, it will make it more difficult to ensure that the banks and the bankers pay when there are mistakes, rather than the taxpayer."

A UK official told this website that talks on pay would continue, stressing that London wanted to shift remuneration towards long-term performance, insisting that "no country has tougher rules than the UK on bank pay."

The principle of deferred bonuses was put into EU law as part of the previous directive on capital requirements.

McCarthy, the assembly's expert on bank pay, told EUobserver that the UK government had "wasted 18 months by failing to bring any alternative deal to the table until the last minute", adding the UK now had "no allies and no arguments."

Under the current agreement, 25 percent of the total bonus payment could be composed of a five-year bond or security. In an attempt to incentivise deferral, the bond would then benefit from a "discount" when calculating the total bonus payment.