EU set to agree banker bonuses and capital requirements proposals
Posted, June 30, 2010 @ 00:00
Proposals reward risk-taking but remove recklessness
Brussels, 30th June 2010 -- The EU is set to approve the revised Capital Requirements Directive after MEPs reached agreement with the Council of Ministers today, Vicky Ford MEP, European Conservatives and Reformists group shadow rapporteur on the proposals said.
The new directive will enshrine the agreements of the G20 and the Financial Stability Board into EU law, with a few extra additions:
· For all senior managers, risk takers and risk controllers there will be a two way constraint on bonuses so that at least 50 percent of the bonus must be deferred for a minimum of three to five years and no more than 30 percent can be paid in cash;
· Banks will need to report the number of people earning over one million Euros in each country so that regulators can ensure that the long term risks taken by banks are controlled;
· Additional tests for directors of banks in receipt of "Exceptional Government Intervention" i.e. bailed out banks will force them to justify their remuneration package.
The agreement also brings into place stronger rules which would require banks to hold approximately three times as much capital against trading books as before the economic crisis. This should help to prevent undercapitalised high-risk trading situations. The new rules will be implemented during next year with a two year transition for 'historic' trading positions.
Ms Ford, who is a former banker, said:
"This is a good first step in ending the high risk bonus culture and instead ensuring that risk takers' interests are aligned to the long-term stability of their bank. There needs to be responsible risk-taking by banks and bankers, and new bonus arrangments are necessary to prevent the kind of recklessness that contributed to the financial crisis.
"The bonus rules will be in place from the end of this year - these rules are an absolute minimum. During the economic downturn individual banks need to recognise that bonus restraint is important not only to rebuild balance sheets but also to regain public confidence."
"Many banks are already taking a much more conservative approach to their trading activities and these proposals will ensure they compete on a more level playing field. Personally, I would have like to have seen a shorter transition period for the new trading book rules to take effect, but it is important that there is international agreement."