Negotiations on bankers' pay end without reaching agreement

Talks aimed at breaking a deadlock on the controversial issue of bankers’ pay ended without agreement last night, as negotiations stalled on the issue of capping banking bonuses.

Irish officials have been leading the negotiations between the European Council and the European Parliament on the Capital Requirements Directive, which includes proposals to cap bankers’ pay. But talks with the European Parliament ended without a deal being agreed. The Irish presidency now hopes that agreement will be reached at a meeting next Wednesday.

“We will have a further, and it is hoped, final trialogue on 27th February,” a spokeswoman said, referring to the key negotiating stage of the EU’s legislative process which involves discussions between representatives from the European Parliament, European Council and European Commission. “We are very close to agreement,” she said.

Outstanding issues

It is understood that between five and seven outstanding issues remain to be worked out between member states and the European Parliament, one of which is bankers’ bonuses, with Britain in particular concerned about the introduction of a curb on pay.

The genesis of the Capital Requirements Directive, which implements the international Basel rules on banking, dates back to 2011, when the European Commission formulated a response to the banking crisis. Last year the European Parliament introduced a series of amendments, including proposals on bankers’ pay.

While originally the Parliament requested the introduction of a 1:1 bonus to salary ratio, it then agreed that this could be raised to 2:1 under certain conditions, including if support is pledged by a supermajority of shareholders.

Countries such as France and Germany supported the suggestion, arguing that such a move would discourage excessive risk-taking in the financial sector, but Britain has been opposed to the proposal to curb bankers’ bonuses, with industry players warning that it could lead to higher salaries.

Negotiations intensified over the past few weeks, with Britain pushing for compromise on the proposal to cap bonuses at no more than two times salary.

The rules apply to all banks operating in Europe and their international subsidiaries. It is understood that any final agreement may grant exemptions to the non-EU subsidiaries of European banks.

On Monday, an alternative British proposal on the issue was reviewed, which included a suggestion to grant exemptions to the non-EU subsidiaries of EU banks.

The other outstanding issues are mainly technical issues connected to capital buffers, corporate governance and the possibility of granting flexibility to national authorities to apply different capital rules depending on the institution.

Narrowing gap

While agreement has not yet been reached on these issues, a spokeswoman for the Irish presidency said the gap had been narrowed on some of these during yesterday’s discussions.

The Capital Requirements Directive, or CRD IV , is a key element of the European Union’s banking policy, and represents an element of the European banking union, a key focus for Ireland during its six-month presidency of the European Council.

The European Commission’s original proposal announced a year ago was accepted by European leaders during the Danish presidency of the Council. Cyprus began discussions with the European Parliament during its tenure, with Irish officials taking over discussions earlier this year.