The European Parliament has voted to curb bankers' bonuses and reduce speculative risk-taking, and to step up capital provisions to help banks better cope in times of crisis.
The banking package, approved on Tuesday (16 April), is broadly seen as the most comprehensive so far. MEPs said they expected that the reform should also spur growth, by making it easier for banks to lend to small firms that drive the economy.
Austrian MEP Othmar Karas (European Peopel's Party), who oversaw the legislation, said that the new single rule book applying for all of the EU’s 8,200 banks would be “the foundation on which the EU banking union must be built”.
To curb speculative risk-taking, the agreed basic salary-to-bonus ratio will be 1:1. This could be raised to a maximum of 1:2 if approved by at least 66% of shareholders owning half the shares represented, or of 75% of votes if there is no quorum.
To encourage bankers to take a long-term view, a minimum of 25 % of any bonus exceeding 100% of salary, must be deferred for at least five years.
Capital requirements and buffers
EU banks will be also required to set aside more capital as a cushion against hard times. This capital must be readily convertible into cash needed to pay depositors and creditors in an emergency.
Banks will also be required to hold a "capital conservation buffer” to absorb losses and protect their capital, and a "counter-cyclical capital buffer" to ensure that in times of economic growth, they accumulate a sufficient capital base to enable them to continue providing a stable supply of credit in stress periods.
The legislation will require banks to disclose profits made, taxes paid and subsidies received country by country, as well as turnover and number of employees. From 2014, these figures should be reported to the European Commission and from 2015 made fully public.
Banks will be supervised by national banking authorities in collaboration with the European Banking Authority (EBA), whose supervisory powers will be expanded.
The delegation of French Socialist MEPs in the European Parliament welcomed the vote and called it “a socialist victory”.
The Green/EFA group stressed that they had played a central role in the legislative process.
Commenting after the vote, Green finance spokesperson Philippe Lamberts (Belgium) said: “The EU Parliament played a crucial role in ensuring this legislation is truly robust, with its successful insistence on a cap on bonuses, transparency of banking activities and a capital surcharge for systemic banks. … EU-wide curbs on the excessive bonuses paid to bankers would mean the EU is finally, if belatedly, responding to public interest and demand regarding the sometimes obscene levels of bankers' remuneration.”
The centre-right group of the European Peoples’ Party welcomed the new set of rules for banks.
“The rules concerning bankers' bonuses do not regulate the amounts of the salaries. As legislators, we do not regulate salary levels. But we install fairness and transparency and we contribute to a change in culture,” said Austrian MEP Othmar Karas (EPP).
Capping bankers' bonuses is designed to address public anger at a bonus-driven culture many European politicians believe encouraged the risk-taking that pulled down banks and governments.
It is set to be introduced from next year despite the objections of Britain. While some token concessions are possible to show goodwill towards the bloc's financial hub of London, the decision on a cap will not be reversed.
- From 1 January 2014 the new rules must apply. Before that they need to be formally approved by EU ministers.
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