EU deal to cap banker bonuses
The bonus cap was part of a sweeping financial reform package introducing higher capital requirements for banks, the so-called Basel III rules
Bankers in Europe face a cap on bonuses as early as next year, following an Irish-brokered agreement in Brussels this morning to introduce what would be the world's strictest pay curbs, in a move politicians hope will address public anger at financial sector greed.
The provisional agreement, announced by diplomats and officials after late-night talks between EU country representatives and the European Parliament, means bankers face an automatic cap of one year’s basic salary on bonus payouts.
“This overhaul of EU banking rules will make sure that banks in the future have enough capital, both in terms of quality and quantity, to withstand shocks. This will ensure that taxpayers across Europe are protected into the future,” said Minister for Finance Michael Noonan, who led the negotiations. Ireland currently holds the EU's rotating presidency.
If a majority of a bank's shareholders vote in favour, that ceiling can be raised to two-times their pay.
The way the deal would effect Ireland was through being a “big building block in the move towards a European banking union”, something the State was “very interested in”, Mr Noonan told RTÉ radio this morning.
Mr Noonan said the regime would make “no great change” in Ireland in terms of bonuses as it has “even more restrictive rules” in existence which would be well within the new guidelines. The deal also “enhances the reputation” of the State and its civil servants as it has been “stuck for several presidencies”, he said.
"For the first time in the history of EU financial market regulation, we will cap bankers' bonuses," said Othmar Karas, the Austrian MEP who helped negotiate the deal.
Such limits to bankers' pay, which is set to enter EU law as part of a wider overhaul of capital rules to make banks safer, will be popular on a continent struggling to emerge from the ruins of a 2008 financial crisis. But it represents a setback for the British government, which had long argued against such absolute limits. The City of London, the region's financial capital with 144,000 banking staff and many more in related jobs, will be hit hardest.
As it stands in draft legislation, the cap would also apply to bankers employed by an EU institution but based elsewhere globally, in a centre such as New York, according to one official. If it “doesn’t work out” and there are a lot of transfers of bankers such as from London to Singapore there was a review built in for 2016, he said.
Mr Noonan said Britain was “rather isolated at the end” on this issue.
There are also provisions for adjusting the value of long-term non-cash payments, so that more bonus can be paid in that way without breaking through the new ceiling.
The backing of a majority of EU states is needed for the deal to be finalised. One member of the European parliament privately signalled that the deal could yet change, pointing to the "reservations" of some EU countries.
Mr Noonan said he would ask his peers to back it at an EU ministers' meeting on March 5th in Brussels. Mr Noonan said while the deal was not "over the line yet", one country could not veto it.