Bankers Allowed Final Bonus Season Before EU Caps Take Effect
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Bankers in Europe will have one final bonus payout before they are barred from awarding themselves bonuses bigger than their salaries, EU officials said on Wednesday.
The rules, part of a wider reform of capital regulation for banks, would hold banks to a 1:1 bonus to salary ratio, with the possibility of being raised to 2:1 if shareholders consent.
“A deal is done,” confirmed one official who attended the negotiations.
Bankers in Europe will have one final bonus payout before they are barred from awarding themselves bonuses bigger than their salaries, EU officials said on Wednesday.
The rules, part of a wider reform of capital regulation for banks, would hold banks to a 1:1 bonus to salary ratio, with the possibility of being raised to 2:1 if shareholders consent.
“A deal is done,” confirmed one official who attended the negotiations.
The law will take effect in January 2014 but will only apply to bonuses paid in 2015. This is because a special provision recognises that bonuses are paid for the previous year’s work, so payments at the beginning of 2014 will not be affected.
“The parliament withstood the pressure from the British government and did not allow any change to the cap on bonus payments,” said Udo Bullmann, a German member of parliament who pushed for strict limits.
Bullmann added:
[quote] Despite bitter resistance from national capitals and the finance industry, Europe will be a little bit fairer from 2014. [/quote]
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The caps represent one of the toughest bonus regimes anywhere in the world and comes as a significant blow to British officials who fear the measure might drive away talent, harm the financial industry and the country’s growth prospects.
The bonus restrictions faced stiff opposition from the UK Chancellor of the Exchequer George Osborne who said that the plan could drive up fixed salaries at banks, which would be even harder to claw back in the event of failure.
“This was a sobering experience,” said another official who requested anonymity. “It’s the first time the UK was outvoted on financial services … There are autopsies being carried out at the UK Treasury.”
One angry British lawmaker reportedly walked out of Wednesday’s meeting as European parliamentarians celebrated the restrictions with champagne.
“Today’s agreement on a bankers’ bonus cap will usher in a much needed culture change, not just for the City of London, but for the rest of Europe too”, said Sharon Bowles, the chairwoman of the influential Economic and Monetary Affairs Committee.
The bankers’ cap is designed to address public anger at what many politicians described as rampant greed in the financial sector, as well as the industry’s bonus-driven culture that encourages risk taking.
It will apply to EU-based employees of any bank, as well as to staff of EU banks wherever they are based.
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