UK pressing for EU bank bonus compromise

Negotiations on a key piece of European banking legislation continued last night in Brussels, as the UK still sought to press for compromise on the controversial issue of banker bonuses.

Talks between member states and the European Parliament on the capital requirements directive stalled last week amid disagreement between member states about the controversial proposals that call for a 1:1 bonus to salary ratio for bankers, which could be increased to 2:1 in certain circumstances.

A proposal of a 3:1 ratio, which would also preclude certain categories of payments from being categorised as bonuses, is now understood to be on the table.

Strict transparency rules, including a proposal to oblige banks to disclose a breakdown of their revenue and profits by jurisdiction, are also under discussion.

Stumbling block

The issue of banking bonuses has emerged in recent weeks as the key stumbling block in negotiations on the capital requirements directive IV, an important piece of banking legislation that has been inching its way through the European system.

The new directive, which will replace the current capital requirements directive, was proposed by the European Commission in 2011 as a response to the crippling banking crisis.

While most of the proposed legislation deals with capital requirements for banks and the implementation of international Basel III standards, the European Parliament introduced the proposal on bank bonuses last year.

Excessive risk-taking

While the proposal on bonuses has strong support from most member states who are keen to curb excessive risk-taking in the banking sector, the UK has raised concerns about the impact of the tax.

It argues that it may lead to higher salaries and lessen the City of London’s attractiveness to workers.

Ireland has been leading the negotiations in Brussels on behalf of the member states.

While the UK has increased the pressure for a compromise on the bonus cap in recent weeks, it has no veto to block the deal, which only needs the support of a majority of members to pass.

EU sources suggested last night that the introduction of some form of ratio-based bonus plan was inevitable.

Other possible tweaks could include exemptions for bank employees from outside the EU.

Securing a deal on the capital requirements directive has been perceived as a key milestone for the Irish presidency.

Any delay in agreement on a deal could severely disrupt the timetable for the implementation of the banking union.

With the euro zone’s economic policies coming under the spotlight following dismal economic forecasts from the European Commission last week, any failure to reach an agreement on the capital requirements directive would be a blow to the European Union.

Italian election

This week’s election in Italy, which has been perceived in part as a rejection of European economic policy and has led to a spike in Italian bond yields, has also increased pressure on Europe as it attempts to control the ongoing economic crisis.

Last night’s meeting comes ahead of a meeting of European finance ministers next week, the first since the results of the Italian election.

The European Commission has said that it is confident that Italy will continue to take the appropriate economic measures to address its deficit and debt burden.