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EU caps bankers' bonuses

February 28, 2013

EU officials have agreed a new financial reform package including a cap on bonus payments for bankers. Designed to calm public anger at the financial sector, the deal could be introduced as early as next year.

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A view of the Frankfurt am Main skyline Foto: Frank Rumpenhorst dpa/lhe
Image: picture-alliance /dpa

Under the provisional agreement bonuses will be automatically limited to a year's salary, making it one of the world's strictest pay curbs.

That ceiling could be lifted to a maximum of twice an employee's annual salary if the move gets the go-ahead from a majority of a bank's shareholders, European Parliament chief negotiator Othmar Karas said early Thursday following late-night talks in Brussels.

"For the first time in the history of EU financial market regulation, we will cap bankers' bonuses," Karas said.

The deal, reached during eight hours of intense negations, is part of a wider overhaul of European financial legislation designed to make banks less liable to collapse in the aftermath of the 2008 financial crisis.

EU lawmakers, the EU Commission and representatives of the bloc's 27 governments also agreed to introduce higher capital requirements for banks and build up cash buffers to cover the risk of unpaid loans.

"This overhaul of EU banking rules will make sure that banks in the future have enough capital, both in terms of quality and quantity, to withstand shocks," said Irish Finance Minister Michael Noonan, who led the negotiations for 27 governments. "This will ensure that taxpayers across Europe are protected into the future."

Opposition from Britain

Britain, which is home to Europe's biggest financial industry, long argued against any bonus payment caps, saying that usch a measure would drive away talent and restrict growth. London had tried to persuade other EU nations against it, but failed to garner much support.

Most governments backed the bonus cap in order to ensure that other so-called Basel III rules are introduced. Consensus over the cap means the Basel III code of capital standards, drawn up by international regulators to reform banking following the financial crash, can come into force by the January 2014 deadline.

In order for the deal to enter into law, it first needs the backing of a majority of EU states, although that is largely expected to be a formality.

ccp/jm (AP, Reuters)