Monday

30th May 2016

EU agrees to cap bank bonuses, lift capital requirements

  • The rules are aimed at reducing risktaking in the banks (Photo: stefan)

The EU has agreed landmark rules capping bank bonuses after an agreement between MEPs and governments struck in the small hours of Thursday (28 February).

The deal, which also increases the amount of capital banks must keep on their balance sheets, will cap bonus payments at the same level as the annual salary, with special dispensation to pay a bonus of up to twice the salary if an absolute majority of shareholders vote for the higher payment.

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The regime, which is composed of a directive and a regulation, puts the rules drafted by the Basel III committee of the Swiss-based Bank of International Settlements into EU law.

The UK government was among the opponents to the new bonus regime, with national officials claiming that banks would merely hike salaries in order to attract top staff.

London Mayor Boris Johnson condemned what he described as "self-defeating policies” adding that “Brussels cannot control the global market for banking talent."

“The most this measure can hope to achieve is a boost for Zurich and Singapore and New York at the expense of a struggling EU,” he said.

The package increases the amount of capital that banks need to hold, as well as a leverage ratio to limit excessive build-up of borrowing on banks’ balance sheets. It introduces capital buffers on top of the minimum capital requirements.

Austrian conservative MEP, Othmar Karas, who led the European Parliament's negotiating team on the package, said that "for the first time in the history of EU financial market regulation, we will cap bankers' bonuses."

"But this is not the most important part of the new rules. The essence is that from 2014, European banks will have to set aside more money to be more stable and concentrate on their core business, namely financing the real economy, that of small and medium-sized enterprises and jobs," he added

Irish finance minister Michael Noonan, who brokered the deal, said "this overhaul of EU banking rules will make sure that banks in the future have enough capital, both in terms of quality and quantity, to withstand shocks. This will ensure that taxpayers across Europe are protected into the future."

For her part, Emma Ruby-Sachs, a director in the New-York-based campaign group, Avaaz said that the move is "a crucial first step towards ending banks' unethical behaviour."

She also referred to Avaaz' online petition on increasing bank tax transparency, noting that "the voices of over 200,000 Europeans against tax-dodging have been heard."

Noonan aims to put the deal to EU finance ministers on 5 March, with MEPs then expected to hold a final vote in plenary.

The EU and US have already missed the original deadline of January 2013 to begin the implementation of Basel III, but are expected to apply the regime from January 2014.

Finance ministers baulk at tax-avoidance rules

Member states will discuss again in June a proposed directive to outlaw practices used by large companies to avoid paying taxes. Meanwhile, the European Parliament makes progress on its probe of Panama Papers.

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