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EU delays financial overhaul over bankers’ pay

01-07-2009

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The European Commission’s plans to toughen up bank capital rules are being delayed amid disagreement over how far supervisors should be allowed to meddle with bankers’ pay, according to sources.

EU Internal Market Commissioner Charlie McCreevy was due to present proposals to reform the bloc’s bank Capital Requirements Directive (CRD) last week following an initial recommendation on the matter in April (EURACTIV 29/04/09). 

But McCreevy’s spokesperson, Oliver Drewes, said the proposal was not on the Commission’s agenda this week. “It is not certain when it will be published,” he told EURACTIV.

“The Capital Requirements Directive is still stuck because remuneration remains contentious,” an EU source told Reuters. “Specifically, the question is whether bonuses can be retroactively withdrawn,” the source added.

A second source told Reuters that McCreevy is considering whether to ditch the remuneration element and put forward a CRD proposal in September that would include the rest of the planned elements, such as tougher capital requirements on a bank’s trading book.

Stephen Green, chairman of HSBC bank, said there was an emerging regulatory consensus on what responsible compensation should look like: “Appropriate deferrals, appropriate clawbacks, conditionally structured to align the individual’s interest with the long-term interest of the shareholder – and therefore with the public interest too,” Green told an annual international banking conference held by the British Bankers’ Association in London.

Any reform adopted by the European Commission will need the approval of EU states and the European Parliament to become law. The bloc already adopted one set of CRD reforms earlier this year and a third wave is due in the autumn.

Proposal on derivatives

Drewes told EURACTIV that the other expected proposal on derivatives was likely to be presented on Friday (3 July), after having already been postponed.

The non-legislative text is meant to increase safety and transparency in the over-the-counter derivatives market, which stands accused of having worsened the crisis in financial markets (EURACTIV 20/02/09).

(EURACTIV with Reuters.)

Background

The overhaul of the Capital Requirements Directive was set to honour a pledge made by the G20 group of industrialised and emerging market countries in April to give banking supervisors powers to intervene if they think bonuses encourage too much risk-taking.

Many of the EU's member states, such as Britain, France and Germany, are G20 members who signed up to the pledge. There was widespread outrage over public money being used to rescue banks, some of whose top executives walked away with huge payouts or pensions.

The proposal was aimed at reviewing the Capital Requirements Directive (CRD), in order to introduce tighter standards to assess the impact on capital requirements of remuneration and securitisation in the banking sector. A first revision of the CRD, launched before the financial crisis, was recently approved by the European Parliament (EURACTIV 07/05/09).

Timeline

  • 3 July 2009, The Commission is likely to propose communication on derivatives

Further Reading

European Union

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