The blight of worldwide economic crisis has prompted European Parliament to vote in favor of capping EU banker bonuses, 625-28. In addition, extensive pension payouts were affected by the Parliament decision. The Associated Press reports that any short-term cash bonuses from next year will be limited. The European Union hopes the decision will inspire other countries to deal similarly with banks.
EU bank rule will permit only partial bonuses in advance cash
Early withdrawal of EU banker bonuses will cap at 30 percent of the annual potential bonus. The 70-percent remainder will be held back and distributed only if the company performs at a high level for the year. This may create enough incentive to lead European bankers away from the path of short-term personal gain rather than long-term customer satisfaction. Michel Barnier, the EU financial services commissioner, told the AP that “There can be no return to business as usual”.
Twenty percent cap on huge early withdrawal
For big banks where executives get bigger bonuses, they can have only 20 percent of their bonuses until business performance is taken into account. What constitutes a “large” bonus was not specified by Parliament, though. The entirety of the European Union – comprised of 27 member countries – will be bound by the ruling on 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 could 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 3 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 likely public response would be the banks brought this on themselves, and it is time to pay.
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usatoday.com/money/world/2010-07-07-eu-bank-bonuses_N.htm
