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. Any form of short-term cash bonuses of this nature will fall under Parliamentary sway. Now it is time for the rest of the world to follow suit.
EU bank rule will permit only partial bonuses in advance cash
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 business performs well. This may create enough incentive to lead European bankers from the path of short-term personal gain instead of long-term customer satisfaction. Michel Barnier, the EU financial services commissioner, told the AP that “There can be no return to business as usual”.
For extra-large bonuses, advance withdrawal is limited to 20 percent
Early withdrawal from large-scale bonuses could be limited to 20 percent. European Parliament has neglected to numerate what constitutes a “large” bonus so far. All 27 European member countries will adopt the new cap on 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.
Banks will be required to have more money on hand
As part of the new rule, European banks beginning in 2012 can have to keep at least a minimum level of operating capital on hand to cover risky ventures like mortgage-backed securities. According to the AP, the specific capital level for European banks would be approximately 3 to four times the previous (pre-recession) level. The worry on the part of the banks is that 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 one more financial meltdown – is simply too horrifying to contemplate.
More details about this topic at these websites:
USA Today
usatoday.com/money/world/2010-07-07-eu-bank-bonuses_N.htm
