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Bankers will only be able to get part of their yearly bonuses in cash upfront
under new European Union rules that will enter into force next year.
A deal announced yesterday between EU governments and EU lawmakers will
require banks to limit cash bonus payouts, with most executives only getting 30
percent straight away and the rest paid out later if the company performs
well.
The draft rules go to the European Parliament next week, where they are
almost certain to win approval after the agreement reached late Tuesday.
The discussion on the caps was launched after a European outcry over payments
to executives of banks that had received large state bailouts to avoid collapse
during the financial crisis. Some say big bonuses skew incentives in favor of
excessive risk-taking.
Starting next January, cash bonuses will be capped at 30 percent of the total
bonus and 20 percent for "particularly large" bonuses. The measure leaves it to
individual governments to determine what "particularly large" means in their
economies.
While some European countries, including Britain, have already imposed limits
on banker bonuses, the new rules set minimum caps for all 27 members of the EU.
France and Germany have also effectively set caps by pressing banks to agree to
limit executive pay.
A large part of the bonus must be deferred, thought it is up to governments
to determine for how long. The money will be held as "contingent capital" for
banks to call on first if they urgently need funding.
The measure also limits "exceptional pension payments" to avoid the kind of
bloated severance packages for disgraced departing executives that have caused
public uproar around Europe.
Banks will also be required to hold a minimum amount of capital to ensure
they are covering risk from their trading book and complex securitized
investments - such as mortgage-backed securities - to avoid a repeat of
risk-related losses during the financial crisis. The capital requirements will
take effect in 2012.
Global banking regulators are also separately drafting tighter capital
requirements. |
