EU to Impose Further Caps on Bank Bonuses
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European Union officials are considering further curbs on bankers’ remuneration, banning upfront cash bonuses that exceed annual salaries. The move is backed by a majority of nations including Germany and France, much to the dismay of Britain.
The proposal, part of a drive to implement the so-called Basel III Rules aimed at preventing a repeat of the 2007-09 crisis, would hold banks to a 1:1 bonus to salary ratio, with the possibility of being raised to 2:1 with the backing of a supermajority of shareholders, reported the Financial TImes on Sunday.
European Union officials are considering further curbs on bankers’ remuneration, banning upfront cash bonuses that exceed annual salaries. The move is backed by a majority of nations including Germany and France, much to the dismay of Britain.
The proposal, part of a drive to implement the so-called Basel III Rules aimed at preventing a repeat of the 2007-09 crisis, would hold banks to a 1:1 bonus to salary ratio, with the possibility of being raised to 2:1 with the backing of a supermajority of shareholders, reported the Financial TImes on Sunday.
If agreed, the proposal, which has already gained a “clear majority” within the EU with only three countries opposing the cap, would see an unprecedented tightening of EU law to curb banker pay as soon as January 2014.
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According to the FT, British officials are now “scrambling” to secure revisions to the proposal, suggesting alternative reforms that “build on the principle of a cap” while removing elements that would backfire.
Specifically, Britain circulated an informal position paper on Friday, proposing an absolute ban on upfront cash bonuses that exceed salary and a requirement for bank shareholders to set a cap on variable to fixed pay, as well as remuneration that is congruent with bank performance.
According to British officials, the EU’s push for a fixed bonus to salary ratio will only encourage “large cash fixed salaries”, undermining financial stability and weakening existing clawback rules which banks are beginning to enforce.
The report added:
[quote] We’ve always been in favour of a rigorous regime, but we need to make sure any reforms don’t create unintentional incentives that actually achieve the reverse of what is intended. [/quote]
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However, diplomats said London’s chances of redefining the ratio were slim as its position falls short of the European Parliament’s key demand of a tight range-bound maximum ratio covering the entire bonus.
Top bank executives have urged British prime minister David Cameron to oppose the curbs vigorously. “The banks are panicking. They always thought the UK and Germany would save them,” one diplomat told the FT.
Germany is backing the EU proposal as a compromise, hoping the issue will not interfere with a reform to bank capital rules, the FT reported.
Banks are facing a backlash from EU lawmakers determined to cut variable pay as part of a quest to reshape lenders as utilities rather than money-making machines.
Public outrage and shareholder rebellions have led some banks to limit payouts.
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