Banks

EU Lawmakers to Close Deal on Banker Bonus Clampdown

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Daniel Grill

European Union lawmakers areexpected to agree on Wednesday to bar bankers in Europe fromgetting bonuses bigger than their salary, introducing the firstcap of its kind globally.

One of the most ambitious reforms of the financial crisis,the cap is designed to address public anger at a bonus-drivenculture many European politicians believe encouraged therisk-taking that pulled down banks and governments.

It is set to be introduced from next year despite theobjections of Britain. While some token concessions are possibleto show goodwill towards the bloc's financial hub of London, thedecision on a cap will not be reversed.

EU officials indicated that there could be a further delayto the introduction of the new rules until the middle of 2014 toallow countries time to complete legal preparations - a delaythat could spare bankers for one more bonus season.

Lawmakers from the European Parliament and diplomatsrepresenting EU countries are to begin talks on finalising thebonus rules at 1730 GMT. Officials expect a deal to be clinched.

"This was a sobering experience," said one official familiarwith British thinking, who asked not to be named. "It's thefirst time the UK was outvoted on financial services.

"There are autopsies being carried out at the UK Treasury.They will only ask for marginal changes but they cannot changethe fundamental direction," he said. One European diplomatpredicted only "minor tweaks".

The rules, part of a wider capital regime for banks, wouldlimit banker bonuses to the equivalent of their salary, or twotimes their salary if shareholders agree. They represent thetoughest bonus regime anywhere in the world.

They threaten Britain's financial industry the most, raisingthe risk that some banks and their top bankers could relocate toother financial centres outside the European Union.

Earlier this month, Britain's finance minister, GeorgeOsborne, tried to change the rules at a meeting of EU financeministers but no one supported him.

His inability to fend off the reform underscored Britain'swaning influence in the EU and is also likely to fuel deepeningeuro scepticism in Britain.

The cap has already been softened by allowing banks todiscount the future value of share options, bonds or othernon-cash payments paid out over more than five years.

As it stands, one quarter of a banker's bonus can be paid inthis way but, in an attempt to soften the blow for Britain, thisratio could be raised in the final round of negotiations.

Such alterations, however, would have only a slight impacton the total amount of bonus that can be paid.

Furthermore, any changes will require the approval of theEuropean Parliament, which pushed for the clampdown in a widerlaw that chiefly deals with increasing the capital that bankshold to make them safer.