RULES to cap bankers’ bonuses and make sure they do not benefit from taking excessive risks with other people’s money have been voted through by the European Parliament.
Irish banks and others bailed out by the state will be subject to even tougher measures that will restrain the overall amounts paid in bonuses to bankers and directors, encouraging bankers to prioritise a stronger capital base and loans to the real economy rather than their own pay and perks.
The rules are the toughest in the world so far and were agreed despite some of the industry warning that it would force the best of their profession to move to countries outside the EU.
However, there were also significant concessions made, leaving the banks themselves to decide on some of the details.
But the thrust is to ensure that the era of offering bonuses that are several times the amount of salary is over. Bankers will be able to collect just 30% – and 20% for particularly large pay-outs – of their bonus as cash up-front while the balance must be deferred for at least three years to see how the business performs.
At least half the total bonus would be paid as contingent capital, and shares.
Bonus-like pensions will also be covered with exceptional pension payments held back and linked to the overall strength of the bank. This is to avoid bankers retiring early with enhanced pensions, unaffected by any crisis at their banks they had helped create.
New rules on capital requirements are expected to result in banks having to hold up to four times more capital against their trading risk than they do currently. The stricter capital rules on bank trading activities and higher standards for re-securitisations should ensure banks properly cover the risks they are running on their trading activity.
British Socialist MEP Arlene McCarthy said that despite claims by banks that they have learned lessons, they have actually increased salaries and bonuses as a proportion of revenues.
Internal Market Commissioner Michel Barnier, who is responsible for the Capital Requirements directive, said it underlined the message that there would be no return to business as usual.
The rules would also make the sector as a whole better able to resist stress, he added.
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