In an effort to further reduce risk taking in the banking sector, European policymakers have agreed to cap bankers’ bonuses and to require that banks hold larger capital reserves.
According to a deal reached by European Parliament and Council negotiators, bankers’ annual bonuses must not normally exceed their annual salaries, although they would be allowed bonuses of up to twice their annual salary with the approval of 50% of shareholders.
The measure is designed to curb excessive risk-taking. And, to encourage bankers to take a long-term view, if the bonus is increased above 1:1, then a quarter of the bonus would be deferred for at least five years.
The deal would also raise minimum capital requirements. Banks will be required to hold a minimum of 8% high-quality capital (mostly Tier 1), it says. And, banks would be required to disclose profits made, taxes paid, and subsidies received, on a country by country basis; as well as their employee turnover and number of employees. These new disclosures would have to be reported to the European Commission in 2014, and be made fully public in 2015.
“We have achieved the most comprehensive bank regulation package in the EU. Banks will be stabilised and more resistant to crises”, said rapporteur Othmar Karas vice-chair of the parliament, and member of its Committee on Economic and Monetary Affairs.
The political agreement must be approved by European member states and the European Parliament plenary. A vote is expected at its April 15-18 session. And, if approved, individual countries would need to include the rules in their national laws by January 1, 2014.