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.
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.”
After today’s vote, British Liberal Democrat MEP Sharon Bowles said the new rules would mean “no more Fred Goodwins” – a reference to the former Royal Bank of Scotland chief executive described as “the world’s worst banker” for his role in the bank’s near collapse and the need for a £45.5bn (€54.5bn) taxpayer bailout.
His massive payout for walking away – a £2.7m (€3.23m) lump sum and a £703,000 (€842,895)-a-year pension – caused outrage and came to represent the worst excesses of unconditional contract terms.
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.
“Since 2008 the public has had to put up with seeing top bankers continuing to take home millions in bonuses, while they see their own homes repossessed. This landmark piece of legislation will put an end to the unjustifiable bonus culture as we know it,” said Ms Bowles after the vote.
“There will be no more Fred Goodwins. Bonuses dressed up as pension benefits will be stored as a bank asset for a minimum of five years, so the bankers will now be the first to take the hit if the bank performs poorly or collapses.
“The taxpayer will no longer have to pick up the tab for bankers who bring down the financial institutions they work for through short-term risk-taking and greed.”
British Labour MEP and vice-chairman of the European Parliament’s Economic and Monetary Affairs Committee, Arlene McCarthy, said: “We have a duty as legislators to respond to the public’s concerns about the obscene bonus culture.
“At a time when the government is making substantial cuts, scaling back public services and support to families and businesses, our constituents expect banks to prioritise stability and lending over their own pay and perks.
“The banks have had two years since the 2008 financial crisis to do this and have failed to act, so now we will do the job for them.”