BRUSSELS: Negotiations to introduce a cap on bankers’ bonuses in the European Union stalled yesterday, after EU countries and the bloc’s parliament clashed over how far to go in curbing pay for the industry’s top earners.
The talks, described as tense by one person present, with some in the room “doing a lot of yelling”, resume next week. Although a cap on bonuses still appears likely, it is unclear whether the limit will be set at the level of a banker’s annual salary as early indications suggested, or higher.
Lawmakers in the European Parliament, backed by Germany and France, have argued that caps on bonuses will prevent the reckless risk-taking that led to the financial crisis, but they face opposition from Britain, home to the region’s financial capital.
Othmar Karas, the Austrian member of parliament who is negotiating the final shape of the law, said the parliament was sticking to demands for a maximum limit on bankers’ bonuses of two times salary if given shareholder approval. “This chapter has not ended,” he said after the talks.
Another official who followed the discussions said there had been no agreement on bonuses, with several parties unhappy with a proposal to allow for a higher cap of three times salary. “There still remain a few issues to be resolved,” said a spokeswoman for Ireland, which as the holder of the rotating EU presidency, steered the talks. A bonus cap would play well with austerity-weary voters, who take a dim view of bankers’ continuing to take lottery-sized bonuses from an industry propped up by trillions of euros of taxpayers’ money.
But disagreement on this point could have a far wider fallout as it could further delay a wider body of legislation introducing stricter capital rules for banks, known as Basel III, to make them safer. Talks also examined these rules but here, there was also divergence.
Banks have pushed for months to influence the rules, flooding lawmakers with suggested amendments. Regulations such as these have seen financial lobbyists mushroom in Brussels, some of whom can earn more than ¤400,000 ($534,000) a year.
In London, home to some of the globe’s biggest dealing rooms, bankers said the new regime would prompt a move to higher basic pay rather than a shift away from the skyscrapers of Canary Wharf and the City of London financial district.
Some argue that switching the focus to basic pay could perversely encourage more risk-taking, as bankers’ earnings would be less dependent on performance and could not be clawed back if things go sour.
“All you’re going to do is convert bonus to fixed salary,” said one senior banker. “You can’t stop that.” Nicolas Veron, of Brussels think tank Bruegel, said tighter bonus curbs would do little to reform Europe’s banks. “The reason Europe is taking an ever more radical approach to regulation is because it hasn’t managed to solve its financial crisis,” said Veron.
European wrangling over bankers’ pay has already held up an EU law meant to implement a global bank capital accord known as Basel III, one of the world’s most important regulatory responses to the financial crisis.
While London has accepted that the cash bonus should be no higher than a banker’s annual salary, it says a bonus paid in share options, for example, should be allowed to exceed that limit as it can be clawed back. Even some bankers agree remuneration has to be tackled.
Under pressure from regulators and shareholders, banks have cut bonus pools and awards are increasingly deferred for longer periods, subject to clawbacks and sometimes paid in ways that mean there is no payout if the bank’s fortunes falter.
Britain has not capped bankers’ basic pay. London dominates the market for foreign exchange and derivatives trading and its property market, luxury stores and jobs pool is heavily dependent on high-spending investment bankers.
Reuters
