22nd Mar 2018

Bank capital rules delayed after talks collapse

  • Taking aim at bank bonuses (Photo: Images_of_Money)

Last ditch attempts by the Cypriot presidency to push through EU legislation on bank capital levels and limits on bonus payments have collapsed, with MEPs and ministers still deadlocked after months of talks.

Irish officials, whose government will hold the rolling presidency from January, will now assume responsibility for brokering a deal.

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Under the compromise proposed by the Cypriots, bonus payments would be capped at the same level as salaries, with bank shareholders able to waive this in favour of a 2:1 ratio only with a supermajority of at least two thirds of shareholders voting.

In exchange, MEPs would accept the EU governments' position on liquidity and leverage which would allow them to tailor national rules to the needs of domestic banks.

Negotiations between MEPs and ministers were set to continue on Tuesday (18 December). However, a handful of member states, including Germany and the UK, spiked the plan, with one official telling EUobserver that the Cypriot team had "strayed too far from their mandate".

The legislation, which is aimed at putting the Basel III rules drawn up by the Swiss-based Bank of International Settlements into EU law, deals with the minimum levels of core capital held by European banks.

Low levels of core capital and over-leveraging were among the main contributory factors in the 2008-2009 financial crisis, leaving many banks unable to absorb multi-billion-euro losses from sub-prime debt.

The delay means the EU will join the US in failing to meet the January 2013 implementation date laid out in the Basel III accord.

Speaking with MEPs on the economic affairs committee on Monday (17 December), Cypriot finance minister Vassos Shiarly refused to be drawn on the state of the negotiations, commenting only that "agreement is within reach."

The three main unresolved issues are believed to be bank bonuses, rules on liquidity and leverage, and supervision of the regime.

However, a national official involved in negotiations played down the prospect of a swift deal, commenting that there are "loads of gaps in the text" and disagreements among member states, as well as between ministers and the European commission.

Governments want to be responsible for setting national supervision regimes to take account of the demands of their banking sector.

The commission wants to give the London-based European Banking Authority the final say over implementation.

Although there is strong public support for cracking down on executive pay, some national regulators claim that the bonus cap could be counterproductive, leading banks to respond by increasing salaries.

The directive's predecessor - "CRD III," adopted in 2010 - did not include a fixed cap on bonus payments but requires the bulk of a bonus to be paid in shares or contingent capital, both of which can be recouped if a bank underperformed or faced financial difficulty.

The rules are seen as a vital component of the planned single rule-book for EU banks and a banking union.

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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.

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