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 ruling constricts advance cash bonuses
Beginning in 2011, advance EU banker bonuses will only be allowed to reach 30 percent of annual advance loan cash. The remaining 70 percent will be held in reserve and paid to the banker if the company performs well. The idea behind this is to hold a sufficiently large carrot before EU bankers, where bonuses will inspire rather than simply be expected. “There could be no return to business as usual,” EU financial services commissioner Michel Barnier told the AP.
Twenty percent cap on huge early withdrawal
Banks where executives receive extra-large bonuses should expect to be able to take a maximum of 20 percent early. What constitutes a “large” bonus was not specified by Parliament, though. The new cap on cash till 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. Great Britain, France and Germany won’t seem much difference, as they’ve had banker bonus caps in effect for a while.
More operating capital can be the rule
European Union banking establishments will even be required to maintain a enough level of capital on hand to insure against risky investment products. 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. The worry on the part of the banks is the open-endedness of this requirement may paint them into a corner and require that they hold onto so much that profits will plummet. The ultimate equalizer – the prospect of another financial meltdown – is simply too horrifying to contemplate.
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USA Today
usatoday.com/money/world/2010-07-07-eu-bank-bonuses_N.htm
