European Parliament approves stricter rules on bankers' bonuses

08:17, July 08, 2010      

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The European Parliament on Wednesday approved stricter rules concerning bankers' bonuses and capital requirements to avoid high risk in the banking sector.

At a plenary session held in Straasbourg, France, members of the European Parliament approved caps on upfront cash bonuses paid to bankers and tightenened rules on capital reserves that banks must hold to guard against risk.

"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," said MEP Arlene McCarthy.

"A high-risk and short-term bonus culture wrought havoc with the global economy and taxpayers paid the price. Since banks have failed to reform we are now doing the job for them," Mccarthy said.

According to the draft legislation, cash bonuses paid to bankers will be capped at 30 percent of the total bonus and to 20 percent for particularly large bonuses.

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 their bank was facing," the European Parliament said in a statement.

The draft legislation also introduced stricter capital rules on bank trading activities and higher standards for re-securitisations.

After MEPs approved the draft legislation, EU finance ministers will rubber-stamp it at a meeting possibly on July 13.

Rules concerning bonuses were expected to take effect from January, while those concerning capital requirements would take effect a year later.



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