MEPs today backed a crackdown on bankers’ bonuses – to come into force in time for this year’s round of top-up payouts.
The European Parliament formally endorsed a deal reached last week at talks between representatives of EU governments, the European Parliament and MEPs.
The aim is to curb the “bonus culture” and end risk-taking in the economy.
Under the new accord, banks will still be able to set bonus levels, but would be stopped from paying them out in full, in cash, on time.
Instead immediate cash payouts would be capped at 30% of the total bonus and at 20% for very large bonuses. Half of any up-front payout would be in the form of “contingent capital” – funds which are recoverable first if the bank runs into trouble.
Payment of the rest would be deferred and made conditional on long-term banking performance.
European Financial Services Commissioner Michel Barnier welcomed the European Parliament vote for tackling the root of the economic crisis.
“The requirements on pay and bonuses send a strong political message: there will be no return to business as usual,” he said.
“The EU is leading the way in curbing unsound remuneration practices in banks. Banks will need to change radically their practices and the mentality that have led in many cases to excessive risk-taking and contributed to the financial crisis.”
He added: “The tougher capital requirements for banks’ trading books and their investments in securitisations – the kind of highly complex products that have caused huge losses for banks – will ensure that banks hold significantly more capital to cover their risks. This will make the sector as whole better able to resist stress.”