Bank bonus cap is on the way after EU outvotes Britain

Tim Wallace
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BANKERS’ bonuses will be capped at a maximum of double their salary from 2015, as the EU Council pushed through the plan last night in the teeth of UK opposition.

The measure will come in on 2014’s bonuses, paid out at the start of 2015.

British politicians, bankers and regulators fear the plan will simply drive up salaries, increasing banks’ fixed costs and making it more difficult to cut pay and costs in an economic downturn.

That makes banks less flexible and less stable, making it more difficult to shore up capital levels in any future crisis.

It will also make it difficult to compete. The cap will apply to subsidiaries of EU banks anywhere in the world – so staff in US banks in New York will be able to pay big bonuses to the best staff, when their rivals in the same city will not be able to offer top performers a similar package.

On top of that, leading Bank of England regulator Andrew Bailey fears the cap will cut banks’ ability to claw back payouts if staff performance falls over several years.

Britain agreed with other ideas in the CRD4 directive, which increases banks’ capital and liquidity requirements. But it voted against the package because of the cap and because it disagrees with other states on the definition of capital. The UK worries government bonds are relied on too heavily.