The global economic crisis was caused in no small part by the shenanigans of the banking and investment industries, so the European Parliament has voted 625-28 in favor of EU banker bonuses being capped as soon as possible. Excessive pension payouts will also fall under new guidelines. The Associated Press reports that any short-term cash bonuses from next year will be limited. It’s a move the European Union hopes the rest of the world will follow in kind.
EU bank rule will permit only partial bonuses in advance cash
From 2011 onward, EU banker bonuses will be limited to up to 30 percent of the annual bonus via advance loan cash. The remaining 70 percent will be held in reserve and paid to the banker if the company performs well. This may create sufficient incentive to lead European bankers away from the path of short-term personal gain rather than long-term customer satisfaction. “There will be no return to business as usual,” EU financial services commissioner Michel Barnier told the AP.
For extra-large bonuses, advance withdrawal is limited to 20 percent
For big banks where executives get bigger bonuses, they can have only 20 percent of their bonuses until company performance is taken into account. However, as the AP indicates, what constitutes a “large” bonus was not spelled out in detail by the European Parliament. The new cap on cash until payday bonuses for European bankers effectively creates rules for all 27 member countries of the European Union for how to deal with EU banker bonuses. Countries like Great Britain, France and Germany reportedly had effective banker bonus caps in place.
Banks must hold a minimum capital amount
By 2012, European Union banks will be required to maintain a minimum level of capital so as to cover risky products like mortgage-backed securities. The Associated Press speculates that European banks would have to hold three to four times the standard level of capital in order to cover such risks. However, banks bound by the new rules are concerned that they’ll end up having to set aside even more emergency cash and will lose out when it comes to profit. The ultimate equalizer – the prospect of another financial meltdown – is simply too horrifying to contemplate.
Rethinking global financial reform – the European perspective: