BRUSSELS — The European Union moved a step closer Thursday to imposing strict curbs on bankers’ bonus pay, which has been blamed by many politicians for inciting the risk-taking behavior that set off the financial crisis.
A provisional agreement struck by the European Parliament, the European Commission and national representatives could mean that the coveted bonuses many bankers receive will be capped at the level of their annual salaries, starting next year.
The proposal would allow bonuses of as much as double the salary, if a sufficient number of a bank’s shareholders approved.
The agreement, which will also apply to the European units of foreign banks, is a blow to Britain, which partly relies on generous remuneration packages to ensure that the City of London remains the biggest financial center in Europe and the overseas base for banks from around the globe.
‘’We need to make sure that regulation put in place in Brussels is flexible enough to allow those banks to continue competing and succeeding while being located in the U.K.,’’ David Cameron, the British prime minister, said during a visit to Riga, the capital of Latvia.
Mr. Cameron said Britain would ‘’look carefully’’ at the final proposal before deciding how it would address the issue with other European governments.
The bonus restrictions were part of legislation enacting the Basel III bank regulations, which were also given a provisional green light during the discussions early on Thursday. The Basel rules, approved by global central bankers and the financial authorities, were meant to ensure that lenders had the resources to weather crises.
‘’We’ve achieved the most comprehensive banking reform in the European Union,’’ said Othmar Karas, an Austrian member of the European Parliament and chief negotiator of the deal.
The parliamentary vote reflects in part the global backlash against the outsized remuneration in the financial sector that has surfaced since the financial crisis and economic dislocation that followed. Voters in Switzerland, which is not an E.U. member, will go to the polls this weekend for a referendum that will decide whether shareholders gain more control over executive compensation.
The European Parliament’s bonus rules would also apply to bankers employed by E.U. banks but working outside the bloc, in New York, for example. The E.U. authorities are drafting separate rules that could restrict remuneration at private equity firms and hedge funds.
‘’This legislation was resisted tooth and nail by the industry,’’ said Philippe Lamberts, a Belgian member of the Parliament’s Green bloc.
While the battle has often been portrayed as matching Britain against the Continent, he said, the reality has been that ‘’many in Paris, as well as Frankfurt and Berlin, were not too happy’’ about what was happening in Parliament, but were glad to let Britain take the heat for leading the opposition.
The law is intended to reduce the financial incentives that led bankers to take risky bets, like those made on subprime housing debt in the United States during the credit bubble. But some critics of the legislation have warned that institutions might defeat the intent of the rules by simply raising bankers’ base pay.
Mark Boleat, the policy chairman at the City of London Corporation, which is the voice of London’s financial center, said Thursday that ‘’removing flexibility from pay arrangements in this highly cyclical industry would seem counterintuitive, especially if it leads to higher fixed salaries.’’
Some bankers said the rule posed the question of why the bonus cap would not apply to other industries where staff stand to gain large bonuses. Stephen Hester, the chief executive of Royal Bank of Scotland, told BBC radio on Thursday morning that he did not think ‘’bankers should be treated as special creatures in any way.’’
David Jolly contributed reporting from Paris.
Article source: http://www.nytimes.com/2013/03/01/business/global/european-union-agrees-on-plan-to-cap-banker-bonuses.html?partner=rss&emc=rss
