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EU okays cap on bank bonuses

The European Parliament approved on Wednesday the world's toughest curbs on bank bonuses as part of wider efforts to limit risk in a sector shored up by taxpayers.

india Updated: Jul 08, 2010 01:16 IST

The European Parliament approved on Wednesday the world's toughest curbs on bank bonuses as part of wider efforts to limit risk in a sector shored up by taxpayers.

New rules

From 2011, only 30% of bankers bonuses can be paid upfront. The rest will be dererred by up to five years.
Banks will also have to set aside more capital against repackaged securities held
on their books.

EU finance ministers are set to endorse the new law next Tuesday with the curbs taking effect from 2011 so that only 30 per cent of a bonus can be paid up front, with the rest deferred by up to five years.

The block's financial services chief who drafted the law said the new rules sent a strong political message to banks.

"There will be no return to business as usual. The EU is leading the way in curbing unsound remuneration practices in banks," said Michel Barnier, EU internal market commissioner.

"Banks will need to change their practices and the mentality that has led in many cases to excessive risk-taking and contributed to the financial crisis."

The new rules also force banks to set aside more capital against repackaged securities held on their trading books. The aim is to learn from the financial crisis when the value of securities linked to defaulting home loans crashed, forcing governments to step in with rescue packages.

"It's good news. From January 1, the bonuses of bankers will be curbed," said Pascal Canfin, Green Party member, France.

Arlene McCarthy, the British Labour MEP who steered the measure through Parliament, said governments and taxpayers bailed out the banks with 3.9 trillion euros of support but banks have failed to take appropriate action. "Despite the claims by banks that they have learned lessons, they have actually increased salaries and bonuses as a proportion of revenues."

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