BANKERS could see part of their bonus wiped out if their employer’s capital position falls below certain levels, according to a proposal from the EU’s banking regulator.
Under existing EU rules up to half of a bonus can be paid in cash, with the rest in shares that the employee can cash in over several years. The new law allows other instruments like bonds to be used for the deferred portion and yesterday the EBA proposed conditions for their use, such as when they must be written down if a bank gets into trouble.
If bonds known as contingent capital, a form of hybrid debt, are used they must be written down if a bank’s total tier one capital falls below 8.5 per cent of risk-weighted assets, it said. Lower quality bonds would have an even higher wipe-out trigger of around 10.5 per cent to help bring a bank’s capital level back up to minimum levels and shield taxpayers from having to bailout out lenders.
City A.M. Reporter