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EU Plans To Cap Bankers’ Bonuses

The Council of the European Union and the European Parliament have provisionally made a deal to cap banker’s bonuses. The potential new proposals will allow for banker’s bonuses to be capped at one year’s salary, or capped at two years salary only with explicit shareholder approval. Under the proposed new system, a bonus at the rate of two year’s salary would require the votes of at least 65% of shareholders owning half the shares represented or of 75% of votes if there is no quorum. If a bank issues a bonus beyond the level of a banker’s annual salary then a quarter of the whole bonus must be deferred for at least five years.

Any agreement on the new proposals will need to be formally endorsed by the Council and the European Parliament. The European Parliament is likely to vote on the matter between 15 and 18 April 2013. If approved, Member States would need to include the rules in their national laws by 1 January 2014.The British government has voiced its concerns that the proposed cap will restrict growth in the financial sector and drive away much needed talent. In addition, in order to improve transparency and corporate responsibility in the banking system, the Council and the European Parliament hope that the new rules will also raise minimum thresholds of high quality capital to be retained by the Banks, with the Banks being required to hold a minimum of 8% good quality capital (mostly Tier 1, the lowest-risk form). The new legislation will also require banks to disclose profits made, taxes paid and subsidies received country by country, as well as turnover and number of employees. From 2014 these will need to be reported to the Commission and from 2015 made fully public.

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