This article is from the source 'nytimes' and was first published or seen
on .
It last changed over 40 days ago and won't be checked again for changes.
European Union Agrees on Plan to Cap Banker Bonuses
European Union Moves Toward Bonus Cap for Bankers
(about 3 hours later)
BRUSSELS — Bankers in Europe face a cap on bonuses as early as next year, after an agreement on Thursday to introduce what would be the world’s strictest pay curbs in a move politicians hope will address public anger at financial-sector greed.
BRUSSELS — The European Union moved a step closer early on Thursday to imposing strict curbs on bonus pay for bankers, which has been blamed by many politicians for inciting the risk-taking behavior that triggered the recent financial crisis.
The provisional agreement, announced by diplomats and officials after late-night talks between E.U. member representatives and the bloc’s parliament, means bankers face an automatic cap that sets bonuses at the level of their salaries.
A provisional agreement struck between the European Parliament, the European Commission and national representatives could mean that the coveted bonuses many bankers receive are capped at the level of their annual salaries starting next year.
If a majority of a bank’s shareholders vote in favor, that ceiling can be raised to two times a banker’s pay.
The agreement, as it stands, would be a blow to Britain, which partly relies on generous remuneration packages to ensure that the City of London remains the biggest financial center in Europe.
“For the first time in the history of E.U. financial market regulation, we will cap bankers’ bonuses,” said Othmar Karas, the Austrian lawmaker who helped negotiate the deal.
A majority of E.U. states still must give their final approval for the legislation to go into force and there are expected to be more discussions on the rules at the European Parliament and among governments.
The backing of a majority of E.U. states is needed for the deal to be finalized.
The goal of the bonus cap proposal is to balance many different interests, including “the desire to limit bankers pay while maintaining a competitive European banking sector,” Michael Noonan, the finance minister of Ireland, which holds the rotating E.U. presidency, said in a statement after the talked ended.
Such limits, which are set to enter E.U. law as part of a wider overhaul of capital rules to make banks safer, will be popular on a continent struggling to emerge from the ruins of a 2008 financial crisis.
Under the proposal, the bonus rules would also apply to bankers employed by E.U. banks but working outside the bloc, for example in New York. E.U. authorities are drafting separate rules that could restrict remuneration at private equity firms and hedge funds.
But it represents a setback for the British government, which had long argued against such absolute limits. The City of London, the region’s financial capital, with 144,000 banking staff and many more in related jobs, will be hit hardest.
Mr. Noonan said he would present the plan at a meeting of finance ministers next week.
As it stands in draft legislation, the cap would also apply to bankers employed by an E.U. institution but based elsewhere globally, for instance in New York, according to one official, who was not authorized to speak to the media.
An E.U. diplomat stressed that a significant amount of technical work still needed to be done before the rules were finalized by governments.
There are also provisions for adjusting the value of long-term non-cash payments, so more bonuses could be paid that way without breaking through the new ceiling.
The diplomat, who spoke on customary condition of anonymity, also said the rules would contain a review clause requiring authorities to assess whether the rules were having damaging effects on the banking sector.
Ireland, which holds the rotating E.U. presidency and negotiated what it called a “breakthrough,” will now present the agreement to E.U. countries.
The proposal would also allow higher bonuses if a sufficient number of shareholders agreed.
Irish Finance Minister Michael Noonan said he would ask his peers to back it at an EU ministers’ meeting on March 5 in Brussels.
It is part of a set of laws requiring higher capital requirements for banks, called the Basel III rules, which the E.U. officials also approved early Thursday.
The change in the law is set to be introduced as part of a wider body of legislation demanding banks set aside roughly three times more capital and build up cash buffers to cover the risk of unpaid loans, for example.
Mr. Noonan said the Basel III package would “make sure that banks in the future have enough capital, both in terms of quality and quantity, to withstand shocks” and that “will ensure that taxpayers across Europe are protected into the future.”
Some experts have criticized the E.U., however, for failing to keep to all of the so-called Basel III code of capital standards drawn up by international regulators to reform banking after the financial crash.
The agreement on Thursday will also require banks to outline profits and other details of operations on a country-by-country basis.
A ceiling on bonuses, the only one of its kind globally, is perhaps the most radical aspect of the new rules.
Many in banking argue, however, that such reform will do little to lower pay in finance, where head-hunters say some annual packages in London approach £5 million, or about $7.6 million.
“If the cap is implemented, it could result in significantly more complex pay structures within banks as they try to fall outside the restrictions to remain competitive globally,” said Alex Beidas, a pay specialist with the law firm Linklaters.
An earlier attempt to limit bankers’ pay with an E.U. law forcing financiers to defer bonus payments for up to five years merely prompted lenders to increase base salaries. But it would be harder for banks to raise base pay this time around.
Hedge funds and private equity firms will be excluded from such curbs, although they face restrictions on pay later this year under another E.U. law.
