EU Fails To Agree On Bankers’ Bonus Cap
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The European Union has failed to seal a deal on the Basel bank rules, reported Bloomberg on Wednesday, after members disagreed on how far to go in curbing bankers’ bonuses, with negotiations to continue next week.
Despite rhetoric last week that there had a “clear majority” supporting caps on bankers’ pay, negotiations broke down due to stiff opposition from Britain, home to the region’s financial capital.
The European Union has failed to seal a deal on the Basel bank rules, reported Bloomberg on Wednesday, after members disagreed on how far to go in curbing bankers’ bonuses, with negotiations to continue next week.
Despite rhetoric last week that there had a “clear majority” supporting caps on bankers’ pay, negotiations broke down due to stiff opposition from Britain, home to the region’s financial capital.
According to Reuters, the talks eventually descended into people “doing a lot of yelling,” while doubts remain whether the bonus limit would be set at the level of a banker’s annual salary as early indications suggested, or higher.
Related: EU to Impose Further Caps on Bank Bonuses
Related: EU Lawmakers Seek Region-Wide Caps On Bank Bonuses
Lawmakers in the European Parliament, particularly Germany and France, have argued that caps on bonuses will prevent the reckless risk-taking that led to the financial crisis.
Britain however argue that capping bonuses would prompt a move to higher basic pay, which could perversely encourage more risk-taking, as bankers’ earnings would be less dependent on performance.
[quote]”All you’re going to do is convert bonus to fixed salary,” said one senior banker to Reuters, who declined to be named. “You can’t stop that.”[/quote]Nicolas Veron, of Brussels think tank Bruegel, added that tighter bonus curbs would do little to reform Europe’s banks.
[quote]”The reason Europe is taking an ever more radical approach to regulation is because it hasn’t managed to solve its financial crisis,” he said. “Bonus restrictions will not fix finance. The problems in European banks didn’t originate on the trading floor. If you think about the Irish banks, they were as much retail and commercial banking as investment banking.”[/quote]Related: Breeding The Culture of Greed: Behind Big Banking Bonuses In The UK
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Members of the European Parliament and diplomats are expected to reconvene on February 27 to resume negotiations.
“This chapter has not ended,” said Othmar Karas, the Austrian member of parliament, who is calling for a maximum limit on bankers’ bonuses of two times salary if given shareholder approval.
“I think the council had no mandate to finalize” the discussions, Karas added, while highlighting that the talks did find consensus on the need to phase in a liquidity ratio by 2018, one year ahead of the schedule.
Nonetheless, the EU has struggled to agree on legislation to apply the international standards on capital, known as Basel III, ever since it was published in 2010. Among the key disagreements, besides bankers’ bonuses, include capital requirements for big lenders and powers available to the European Banking Authority.
Related: Banking Breakdown – Why The Basel Accords Failed: Stefano Micossi
Related: Basel Committee Ease Liquidity Rules For Banks
The Basel III measures, which must be written into national laws, would more than triple the core capital lenders must hold and set standards for how lenders should manage risks. The Basel Committee on Banking Supervision brings together banking regulators from 27 nations including to the U.S., U.K., and China to coordinate rule-making.
