EU agrees to cap bankers' bonuses

 

David Cameron says regulations need to be flexible enough for UK-based banks to compete internationally

European Union officials have struck a provisional deal on new financial rules, including capping bank bonuses.

Under the agreement, bonuses will be capped at a year's salary, but can rise to two years' pay if there is explicit approval from shareholders.

The UK, which hosts Europe's biggest financial services centre, was opposed to any caps on bank bonuses.

Prime Minister David Cameron said the EU should concentrate on tightening up banks in other ways.

"We are absolutely clear that we must be able to implement the Vickers plan in the UK, which in some ways is tougher than regulations that are being put in place in other European countries.

"We want to have this proper ring fence between retail banks and investment banks and the rules must allow that to happen."

'Restrict growth'

The Vickers plan, based on the Independent Commission on Banking report led by Sir John Vickers, is designed to keep saver and business deposits from being compromised by the more speculative activities typically undertaken by investment banking operations.

London argues the EU's bonus rules would drive away talent and restrict growth in the financial sector.

The UK had been trying to rally other governments in the 27 countries in the EU behind its position.

Top bankers and financial traders can earn bonuses multiple times their base salaries. But there has been public outrage over bonuses following the huge bail-outs of banks.

The agreement was reached during eight hours of intense talks in Brussels between members of the European parliament, the European Commission and representatives of the bloc's 27 governments.

Core business

Othmar Karas, the European Parliament's chief negotiator, said: "For the first time in the history of EU financial market regulation, we will cap bankers' bonuses.

"The essence is that from 2014, European banks will have to set aside more money to be more stable and concentrate on their core business, namely financing the real economy, that of small and medium-sized enterprises and jobs."

But Joe Rundle, head of trading at ETX Capital, in London, said the cap would backfire. He told the BBC: "It will drive up fixed salaries to compensate. Businesses that do not need to be inside the European Union will leave. And when banks invest in future divisions, it will be outside the EU."

The deal paves the way for Basel III, an overhaul of banking rules.

The G20 group of rich nations had originally planned to bring in Basel III last month, but that has been delayed to January 2014.

Basel III focuses on a ratio of high-quality capital - called tier 1 - which is needed to cushion it against any future shocks. It will rise to 9% after the rules come into effect.

Once the proposals are formally agreed it will start the biggest shake-up of the banking system since the global financial crisis.

The lack of solid financial cushions meant that many banks were vulnerable, and eventually required taxpayer-funded bailouts to avoid bankruptcy.

 

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  • rate this
    -1

    Comment number 34.

    How about they just don't get paid an obscene wage in the first place and use the excess to pump back into the economy? . . . . . .

    I imagine bankers to be like. . . .mega fatties in pin striped suits, ramming pies down their throats, spraying pastry and saliva everywhere as they ply their trade . . . . .I know this is wrong, but it's how I imagine them in their immense greed

  • rate this
    +152

    Comment number 33.

    Only a bonus of 1 years basic salary? Oh my heart bleeds for them, most people would be utterly overjoyed at receiving a bonus of their whole year's salary. I would be happy to get a bonus full stop, most people aren't getting them in the current climate. Just shows the level of greed in that sector and, if they are losing so much money, why do they get bonuses at all?!

  • rate this
    +58

    Comment number 32.

    The sooner this is implemented here the sooner the type of banker who gets multiple-salary bonuses will leave - and good riddance to the investment bankers and proprietary traders.
    Then banking can get back to what it is supposed to do - facilitating the transfer of capital to small and medium sized businesses that need it.

  • rate this
    -62

    Comment number 31.

    It seems that many people on here don't get that capping salaries and bonuses here will just drive business (and tax receipts from said businesses and their employees) to one of the many other competing centres (NY, Singapore, Zurich). It won't prevent future financial crises, and to think it will is facile. Make no mistake, this is the turkeys voting for christmas.

  • rate this
    +125

    Comment number 30.

    The question is why do bankers even GET bonuses just for doing their job ? Teachers don't get bonuses for students passing exams, neither do firemen and nurses for saving lives, yet for wrecking an economy and causing the deeepest recession since the 1920's, they get seven figure salaries and huge bonuses !!

  • rate this
    -44

    Comment number 29.

    Communism by the back door

    Plus what the hell do a bunch of public sector types with their snouts in the private sector taxpayer funded trough, think they are doing limiting what private sector workers can earn?

  • rate this
    +89

    Comment number 28.

    "London argues the rules would drive away talent"..would this be the "talent" that got us into the financial mess in the first place.
    Like politicians,I would have thought the only qualification you need to work in banking is that you went to the right school and Mummy and Daddy were rich.

  • rate this
    0

    Comment number 27.

    "ministers a formality"
    Indeed
    Discreetly silent

    Fearing & dealing for selves, we wait for 'deals' to be struck, whether in conclave or in public, negotiated behind-the-scenes

    On income distribution, Kings wear no morality or rationality, draped instead with corruption & appeasement

    As if 'pay-promotion' & bonuses of 'only 100%' will not be 'enough', to sustain conflict of interest 'as usual'

  • rate this
    +3

    Comment number 26.

    Re14. 45% Tax, was supposed to be 50% but people avoided this tax rate by bringing forward payment of bonus before labour introduced tax, then when Osborne takes off 50% rate they will avoid tax by delaying bonus payment. That's why yield of 50% tax is so low, a complete Government Con trick and why Tories claim yield on 50% tax is so low. In politicians we trust not

  • rate this
    +1

    Comment number 25.

    With all the interesting econoic news this morning we are back onto banker's bonuses! When it's all been said before.

    Yes, I support this proposal from the E.U.

  • rate this
    +4

    Comment number 24.

    Well done!
    These outrageous, indecent bonuses had to be stopped, and only regulation could achieve it.
    I support this 200% (err I should say 100%)

  • rate this
    +46

    Comment number 23.

    At the risk of being flamed by the eurosceptic hordes, is this, perhaps, maybe something positive where the general population can say:

    "The EU did something sensible for us, even when our own government failed."

    (in fact our own government argued heavily against these new propose rules in the EU negotiations).

    Food for thought ?

  • rate this
    -9

    Comment number 22.

    I don't think this will last. Wait for the breach of human rights cases to hit the courts.
    Bankers will move outside of the EU and those that stay will take it to the courts. Failing businesses pay high executive salaries and bonuses in all sections of business, that's where they need to target the rules.

  • rate this
    +3

    Comment number 21.

    Why wasn't this headline news???

    All people are equal however some are more equal than others - G. Orwell - Apply this to all public sector companies and not just banks.

  • rate this
    +65

    Comment number 20.

    "London argues the rules would drive away talent and restrict growth in the financial sector."

    Who cares, split this industry into finance and domestic banking; let them go and gamble elsewhere. If they fail, they fail themselves.

  • rate this
    +106

    Comment number 19.

    My old company occasionally used to offer bonuses. These were stated in advance along with the targets to be met. Hit this sales and profit target and you will get X%, hit a more challenging target and you get Y%. Don't hit the target, or make a loss, you get nothing. Bank shareholders please enforce.

  • rate this
    +34

    Comment number 18.

    I agree- we should stop vast payouts to people from organisations receiving billions from the taxpayer and covering up fraud and criminal behaviiour and failing to deliver. like the ex BBC DG who did less than 2 months in the job and left with a £1/2million+ package.... let's see if this get's past the BBC thought police.

  • rate this
    +2

    Comment number 17.

    All the executive directors of Rolls Royce get over 100% bonuses.

  • rate this
    -16

    Comment number 16.

    How can they put a bonus cap on a competitive market? It is entirely up to a business what they are willing to pay an employee surely?

    What stops them putting a cap now on other jobs? selectively rigging market expectation instead of allowing salaries to rise and fall with demand.

  • rate this
    +6

    Comment number 15.

    Britain's opposition just serves to illustrate the huge power these institutions have over our own government. My own feeling is that we should call their bluff, cap bonuses, and dare them to leave. If they do, then it's good riddance and we shall have a little more power to govern ourselves.

 

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