27th Feb 2021

MEPs drop the axe on bank bonuses

  • Bankers are having their bonuses linked to the performance of their bank (Photo: Wikipedia)

The European Parliament has approved measures to curb bank bonuses, part of a wider series of EU reforms intended to prevent a repeat of the recent financial crisis that has decimated the region's economy.

An overwhelming majority of MEPs voted to support the new measures during a plenary session in Strasbourg on Wednesday (7 July), with 625 votes cast in favour, 28 against and 37 abstentions.

Read and decide

Join EUobserver today

Become an expert on Europe

Get instant access to all articles — and 20 years of archives. 14-day free trial.

... or subscribe as a group

"A high-risk and short-term bonus culture wrought havoc with the global economy and taxpayers paid the price," said British Labour MEP Arlene McCarthy, who was charged with steering the legislation through parliament. "Since banks have failed to reform we are now doing the job for them."

A political deal reached between parliament and member states late last month means EU finance ministers are also set to give their final approval when they meet in Brussels next Tuesday.

Under the new rules, which will take effect from the start of next year, only 30 percent of a banker's bonus can be paid up front, with the rest deferred for up to five years. For larger bonuses, as defined by national bank supervisors, only 20 percent can be paid up front.

In addition, at least half of a bonus must be paid in a mix of contingent capital - funds to be called upon first in case of bank difficulties - and shares, which must be retained for an appropriate period.

A clawback mechanism will force bankers to return a percent of their bonus if their performance turns out to be less beneficial to the firm than earlier predicted.

By placing the emphasis on longer-term profitability rather than short-term gains, EU lawmakers hope to limit many of the risky activities that undermined bank stability during the financial crisis and forced governments to pour in billions of euros in taxpayers money.

"We want to make sure that bonus payments don't support risk taking but dampen it," said centre-right MEP Othmar Karas.

The new rules, which constitute some of world's toughest in the area, will also see bonuses capped as a proportion of salary, and prevent senior bankers from running off with large pensions despite widespread rot in the firm as a whole.

Capital requirements

As part of Wednesday's vote, banks will also be forced to hold higher levels of capital in order to mitigate against the potential risks posed by trading and re-securitisation activities.

The creation of mortgage-backed securities in the US is considered central to the financial crisis, with studies suggesting the new rules will lead to banks holding three to four times more capital against their trading risk than they do at present.

"The amendments to the Capital Requirements Directive voted today by the European Parliament target the investments and practices that lie at the root of the recent crisis," said the EU's internal market and financial services commissioner, Michel Barnier, after the vote.

"This will make the sector as a whole better able to resist stress," he added.

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.

News in Brief

  1. EU leaders restate defence 'autonomy' plan
  2. Rights group exposes Ethiopia massacre
  3. US carried out airstrikes against Iran-backed militia in Syria
  4. Malta closes investigation into journalist murder
  5. Dutch parliament calls China treatment of Uighurs genocide
  6. Spain fined €15m by ECJ over data failures
  7. Belarus: Anti-government protester jailed for 10 years
  8. German charged with spying for Russia in Bundestag

Vietnam jails journalist critical of EU trade deal

A journalist who had demanded the EU postpone its trade deal with Vietnam until human rights improved has been sentenced to 15 years in jail. The EU Commission says it first needs to conduct a detailed analysis before responding.

Stakeholders' Highlights

  1. Nordic Council of MinistersNordic Council to host EU webinars on energy, digitalisation and antibiotic resistance
  2. UNESDAEU Code of Conduct can showcase PPPs delivering healthier more sustainable society
  3. CESIKlaus Heeger and Romain Wolff re-elected Secretary General and President of independent trade unions in Europe (CESI)
  4. Nordic Council of MinistersWomen benefit in the digitalised labour market
  5. Nordic Council of MinistersReport: The prevalence of men who use internet forums characterised by misogyny
  6. Nordic Council of MinistersJoin the Nordic climate debate on 17 November!

Latest News

  1. Armenia 'coup' shows waning of EU star in South Caucasus
  2. 'Difficult weeks' ahead, as variants spread across EU
  3. EU top court advised to strike down Hungary's asylum policy
  4. Frontex chief: 'about time' MEPs probe his agency
  5. Is EU poised to solve child labour in 'green' batteries?
  6. The trap of spreading ideas while attacking them
  7. Who are the EU's new Russian deplorables?
  8. Afghan asylum family beaten in Greece, set adrift at sea

Join EUobserver

Support quality EU news

Join us