EU to cap bonuses for bankers from next year

08:32, July 01, 2010      

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The European Union (EU) will curb bonuses paid to bankers from next year after the European Parliament reached an agreement on the new rules with EU national governments on Wednesday.

"Two years on from the global financial crisis, these tough new rules on bonuses will transform the bonus culture and end incentives for excessive risk taking," Arlene McCarthy, a deputy in charge of the negotiations for the Parliament, said.

"In the last two years the banks have failed to reform, and we are now doing the job for them," McCarthy said.

According to the new rules, cash bonuses paid to bankers will be capped at 30 percent of the total bonus and to 20 percent for particularly large bonuses. And in place of upfront cash a large part of any bonus must be deferred and can be recovered if investments do not perform as expected.

Bonus-like pensions will also be covered to "avoid situations in which some bankers retired with substantial pensions unaffected by the crisis," the European Parliament said in a statement.

The new rules also introduced capital requirement for banks.

"New capital rules for re-securitisations and the trading book will ensure banks are properly covering the risks they are running on their trading activity, including for types of investments like mortgage backed securities that were central to the crisis," the statement said.

The new regulation is set to be approved by European lawmakers at a plenary session on July 7. The part concerning bonuses is expected to take effect from January 2011, while that concerning capital requirements will come into force a year later.

Source: Xinhua


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