MEPs confirm bank bonus cap
By Benjamin Fox
Bank bonuses in the EU will be capped from 2015, as part of banking sector reforms backed by MEPs on Tuesday (16 April).
Deputies in Strasbourg backed a regulation capping the majority of bonuses at the same level as salary with an overwhelming 595 to 40 vote majority. Bonus payments up to twice the size of salary would require the majority approval of shareholders.
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Following the vote, European Commission chief Jose Manuel Barroso said that the cap would "put an end to the culture of excessive bonuses, which encouraged risk-taking for short-term gains".
Although MEPs inserted the bonus cap during negotiations with government ministers, the legislation was initially intended to put the global capital requirements regime proposed by the Swiss-based Bank of International Settlements (BIS) into EU law.
Banks will be required to hold at least 8 percent of top-rated capital on their balance sheets starting in January 2014. Meanwhile, institutions posing a "systemic risk" will be required to hold an extra 3.5 percent of capital. National governments will also be able to require their banks to hold more capital, a key demand of the UK during the negotiations.
Insufficient capital to withstand losses, together with a sudden collapse in liquidity when the money markets seized up, is widely seen as major cause of the 2007-9 banking crisis.
The legislation will also require banks to disclose profits made, taxes paid and subsidies received country by country, as well as turnover of employees. From 2014 these should be reported to the Commission and from 2015 made fully public.
Othmar Karas, the Austrian centre-right MEP who piloted the reforms through Parliament, described them as "the farthest-reaching banking regulation in the EU to date."
"The new single rule book for all its 8,200 banks is the foundation on which the EU banking union must be built," he added.
The new rules also mark the first time that the UK, which has the largest financial centre in the EU, has been outvoted on financial regulation since the 2009 European elections. For their part, all bar two of the Conservative MEPs abstained in the final vote in protest against the bonus cap. Banks have warned that the bonus rules could leave them unable to attract the most talented financiers.
However, Sharon Bowles, the Liberal Democrat chair of the Economic and Monetary Affairs committee (ECON), backed the deal, commenting that it would "make our banking sector more resilient and brings us in line with international standards."
MEPs have already signalled their intention to apply bonus caps to other areas of the financial sector. Last month, the economics committee voted to cap bonuses for hedge fund managers.
EU finance ministers are expected to put their 'rubber stamp' on the regime in the coming weeks.