Europe Moves to Cap Bankers Bonuses

European Union Moves Toward Bonus Cap for Bankers

BRUSSELS â€"   The European Union moved a step closer Thursday to imposing strict curbs on bonus pay for bankers, which has been blamed by many politicians for inciting the risk-taking behavior that set off the financial crisis.

 

A provisional agreement struck by the European Parliament, the European Commission and national representatives could mean that the coveted bonuses many bankers receive will be capped at the level of their annual salaries, starting next year. The proposal would allow bonuses of as much as double the salary if a sufficient number of a bank’s shareholders agreed.

 

 

The agreement, as it stands, is a blow to Britain, which partly relies on generous remuneration packages to ensure that the City of London remains the biggest financial center in Europe and the overseas home of banks from around the globe.

 

‘‘We need to make sure that regulation put in place in Brussels is flexible enough to allow those banks to continue competing and succeeding while being located in the U.K.,’’  David Cameron, the British prime minister, said in Riga, the Latvian capital.

 

 

The bonus restrictions were added to legislation enacting the Basel III bank regulations. The Basel rules, which were agreed to by global central bankers and the financial authorities, are meant to ensure that  lenders have the resources to weather crises.

 

‘‘We’ve achieved the most comprehensive banking reform in the European Union,’’ Othmar Karas, an Austrian member of the European Parliament and chief negotiator of the deal, said at a news conference.

 

The parliamentary vote reflects a global backlash against the outsized pay in the financial sector after the financial crisis and economic dislocation that followed. Voters in Switzerland, which is  not an E.U. member, will go to the polls this weekend for a referendum question that will decide whether shareholders gain more control over executive compensation.

 

‘‘This legislation was resisted tooth and nail by the industry,’’ said Philippe Lamberts, a member of the Parliament’s Green bloc from Belgium.

While the battle has often been portrayed as matching Britain against the Continent, the reality has been  that   ‘‘many in Paris, as well as Frankfurt and Berlin, were not too happy’’ about  what  was happening in Parliament,  he said,  but did not mind allowing London to take the leading role in opposing it.

 

 

 

 

A majority of E.U. states still must give their final approval for the legislation to take effect, and there are expected to be more discussions on the rules at the European Parliament and among governments. 

 

If the proposal goes through, the law on bonuses would take effect on Jan. 1, 2014.

 

Mr. Karas acknowledged that more work lay ahead, with a need for technical working groups to ‘‘put it into a text’’ that  ‘‘holds water legally.’’ Legislators said they would work to ensure that bankers did not get around the rules with so-called ‘‘golden handshakes’’ and ‘‘contract buyouts.’’

 

 

 

 

The goal of the proposed bonus cap is to balance many different interests, including ‘‘the desire to limit bankers’ pay while maintaining a competitive European banking sector,’’ Michael Noonan, the finance minister of Ireland, which holds the rotating E.U. presidency, said in a statement after the talks ended. Mr. Noonan said he would present the plan at a meeting of finance ministers next week.

 

David Jolly contributed reporting from Paris.