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22nd Feb 2020

Britain to oppose EU bank bonus rules

  • Cameron - UK will oppose 'inflexible' bonus rules (Photo: number10.gov.uk)

Britain is to oppose new EU bank bonus rules when finance ministers meet in Brussels next week.

The measures, which would cap the majority of bonuses at the same level as salaries, form part of EU legislation increasing the level of core capital banks must hold on their balance sheets.

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Prime Minister David Cameron's spokesperson said on Thursday (28 February) that EU rules should allow flexibility at national level, claiming that Britain "has some of the toughest remuneration requirements in the world."

The warning came just hours after MEPs agreed to a deal brokered by the Irish presidency.

London Mayor Boris Johnson, seen as a potential rival to Cameron for the Conservative party leadership, described the bonus cap as "deluded" ad "self-defeating".

Speaking with reporters on Thursday, Austrian conservative MEP, Othmar Karas, confirmed that the bonus rules would apply to all employees of European banks whether they are based in or outside the EU.

The Irish EU presidency will present the deal struck with MEPs in the early hours of Thursday morning to EU finance ministers next Tuesday (5 March).

The legislation will be adopted by a qualified majority vote, leaving Britain no opportunity to veto.

The divisions raises the prospect of Britain being outvoted on major financial sector regulation for the first time.

An EU source confirmed that Britain had raised its concerns on the bonus rules at ambassador level on Thursday.

"It is not a foregone conclusion what will happen next," an EU official told EUobserver..

The UK government is anxious to defend the City of London, Europe's largest financial sector hub.

In December 2011 Cameron lobbied unsuccessfully for exemptions from EU financial regulation in return for supporting the fiscal compact treaty.

Earlier, European Council President Herman Van Rompuy and economic affairs commissioner Olli Rehn, warned Britain not to isolate itself from the rest of Europe.

But Philippe Lamberts, who led negotiations on the bank law on behalf of the Green group, said it would be "wrong to portray this as Europe vs Britain."

For their part, British MEPs representing the two sides of Britain's Conservative/Liberal coalition endorsed the deal.

Sharon Bowles, a UK Liberal Democrat, and the chair of parliament's economic committee, said that parliament was "leading the world" in the field of financial sector regulation.

Bowles sought to shift attention away from the new bonus rules to other aspects of the bill.

A combination of over leveraging by banks combined with a collapse in liquidity when the money markets seized up are widely seen as major causes of the 2007-9 financial crisis.

In addition to the bonus and capital rules, the legislation also includes provisions to increase banking transparency.

Country-by-country reporting would require banks to publish its profits, turnover and tax payment on an individual country basis. The reporting could start as soon as 2015 unless the Commission deems that it would undermine the competitiveness of EU banks.

Commission officials have indicated that the regime would be similar to the reporting standards for the extractive and oil industries included in the draft accounting directive, which is currently being negotiated by MEPs and ministers.

There are also additional capital requirements for the so-called "too big to fail" banks.

The rules on capital, leverage, liquidity are in the regulation, with no flexibility regarding the implementation at national level.

The EU's 8,000 banks would be required to hold at last 8 percent of top rated capital on their balance sheets.

Meanwhile, the Brussels-based NGO Finance Watch gave a mixed reaction to the agreement.

Speaking with this website, analyst Frederic Hache described it as "one of the key pieces of the jigsaw" of financial regulation.

However, he added that the failure to agree on a leverage cap was "a significant setback" and that the implementation of capital rules gave "too much discretion to be credible to shareholders and to restore trust in banks' solvency."

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MEPs drop the axe on bank bonuses

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UK isolated as EU ministers agree bank bonus cap

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.

MEPs confirm bank bonus cap

Bank bonuses in the EU will be capped from 2015, as part of banking sector reforms backed by MEPs on Tuesday.

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