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A rack of Barclays-sponsored rental bicycles is seen in London February 10, 2012. (LUKE MACGREGOR/Reuters)
A rack of Barclays-sponsored rental bicycles is seen in London February 10, 2012. (LUKE MACGREGOR/Reuters)

EU proposes tougher bankers' bonus curbs Add to ...

Bankers’ bonuses should be capped at twice their basic pay and “golden hellos” handed back if performance disappoints, European Union lawmakers said on Tuesday.

The bloc’s parliament and member states are approving a draft law to implement Basel III, global rules to toughen up bank capital and liquidity requirements from 2013 to plug regulatory gaps highlighted by the financial crisis.

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EU lawmakers want to include extra elements that are not part of Basel III, such as tougher curbs on bankers’ pay and capital surcharges agreed at the global level for very big banks.

“My approach is that variable pay should not be more than double the fixed,” said Othmar Karas, an Austrian centre-right lawmaker who is steering the measure through parliament.

“We should not do more than necessary and not become populist. A fixed upper limit on remuneration would prevent people from doing a good and responsible job,” Mr. Karas told a webcast meeting in Brussels.

EU financial services chief Michel Barnier, who authored the draft law, has already signalled his backing for a ratio between fixed salary and bonus, but others wanted to go further.

Belgian Green Party member Philippe Lamberts said there was no evidence that salary structures seen at banks like Deutsche Bank or Societe Generale “correspond to any real value creation”.

“I am getting fed up of people saying this issue is populist and we should not go into that. Variable salary cannot be bigger than fixed salary,” he said.

“Don’t tell me you need two-fold, three-fold, five-fold variable salary to do good work. This is false,” Mr. Lamberts said.

Banks have come under fire for failing to show restraint on pay for executives and top staff when thousands of jobs are being cut and wages slashed or frozen in the wider economy after a recession many blamed on them.

U.K bank Barclays Chief Executive Bob Diamond - one of Europe’s highest-paid bankers - took home pay, shares and benefits worth £17-million ($26.9-million U.S.) last year. Credit Suisse Group AG chief Brady Dougan took a more than 50 per cent pay cut, as the bank’s profit slumped, to earn a total 5.8 million francs ($6.3-million) in salary and share-based bonuses.

In 2010, parliament pushed through the current set of EU pay curbs on banks which already go beyond principles agreed by the G20 group of the world’s top economies.

However, banks have already begun to skirt around the current curb on how much of a bonus can be paid upfront in cash by bumping up basic salaries.

Sharon Bowles, British Liberal chairman of the parliament’s economic affairs committee also proposed that “golden hellos” - a big cheque bankers receive to lure them from a rival - would be clawed back or returned if performance fell short.

One of Mr. Barnier’s officials told parliament the EU executive was “certainly prepared to examine with you a number of possible improvements to the remuneration principles”.

Mr. Karas said there was also cross-party backing for using the draft law to implement the capital surcharge the G20 has agreed to impose on 28 of the very biggest banks in the world from 2016 which will be on top of Basel’s 7 percent minimum core capital.

But French centre-right lawmaker Jean-Paul Gauzes warned that including the surcharges in the EU law could put European banks at a competitive disadvantage to their global peers.

Several lawmakers supported widening the Basel III criteria for assets that can be included in new liquidity buffers banks must build up to withstand a month-long credit crunch.

EU president Denmark has also proposed such as step and the Basel Committee, which authored the Basel III agreement, is debating greater flexibility.

At present, most of the buffer must be in top-quality government debt, the rest mainly in highly rated corporate bonds. But countries like Denmark want to include assets like mortgage-backed covered bonds.

Lawmakers have tabled 2,195 amendments to the draft law that will be voted on in committee on April 25 or 26.

Parliament then wants to vote on a first-reading deal with EU states in June to give the European Banking Authority enough time to flesh out implementing measures in time for the January 2013 start date agreed globally for phasing in Basel III.

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