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EU puts caps on bankers' bonuses

EU negotiators have thrashed out a set of new rules seeking to impose a ceiling on the annual bonuses of European bankers. The caps aim to curb excessive risk-taking said to be a cause of turmoil in financial markets.

Bankers in Europe must not receive annual bonuses higher than their individual base pay, an agreement brokered by the Irish EU presidency said.

The deal, clinched by negotiators from the European Parliament and the EU member states on Thursday, also said that shareholders in a bank may vote to raise the cap to double base pay, but not higher.

One quarter of a bonus could be paid in the form of longer-term financial products, for example bonds and share options, which were less likely to prompt excessive risk-taking and which could be claimed back by management if a banker preformed poorly. 

In an effort to soften the controversial rules, banks were allowed to discount the future values of such non-cash payments, the agreement said.

The new rules will apply to all bankers based in the European Union, as well as to the staff of European banks working outside the 27-nation bloc.

Outrage in the banking world

Bank officials said the regulations would hurt the global competitiveness of Europe's banks and upset pay structures.

"This could result in significantly more complex pay structures within banks as they try to fall outside restrictions to remain competitive globally," Alex Beidas, a pay specialist with law firm Linklaters, told the Reuters news agency.

The agreement is also a setback for Great Britain which is strongly opposed to any caps, fearing negative consequence for its City of London global financial hub.

Clampdown long overdue

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Supporters said the proposals would help stop bankers take excessive risks to boost banks' balance sheets and subsequently their bonuses. They argued the cap would address public anger at what many people perceived as rampant greed in the financial sector, which was responsible for the outbreak of the 2008 financial crisis

"This is a revolution in a sector that didn't have any rules," German member of the European Parliament, Udo Bullmann, told Reuters news agency.

Support from a majority of EU member states is needed for the deal to be adopted, making it impossible for a single country like Britain to block it using a veto.

uhe/dr (Reuters, dpa, AFP)

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