Lawmakers in the European Parliament may seek a ban on banker bonuses that exceed fixed pay, as part of a draft law on Basel capital rules.
"We are looking at a set limit" on the size of bonuses compared to fixed salary, Othmar Karas, the lawmaker leading work on the rules, said at a meeting of the body's economic and monetary affairs committee. This limit should be set at "100 per cent, so one-to-one," he said on Thursday.
Karas said he's seeking a deal between the legislature's different political groups as part of a compromise on the draft law. He had previously suggested finance workers' bonuses be capped at twice their base pay.
Labor leaders and politicians have criticized bank-bonus awards as out of touch with economic reality. Royal Bank of Scotland Group Plc chief executive officer Stephen Hester this year waived his £963,000 ($1.5 million) bonus after the UK's opposition Labour Party said it would ask the national Parliament to vote on the award at the bailed-out lender.
Michel Barnier, the EU's financial services chief, has said he is considering proposing extra rules on bonuses in response to payouts that go against "all reason, common sense and morality."
Karas' proposal would have the EU move to reduce payouts faster, by including the measures in the draft Basel bank-capital law, which is scheduled to take effect on January 1, 2013. Global regulators on the Basel Committee on Banking Supervision agreed in 2010 to toughen capital and liquidity rules for lenders in response to the financial crisis that followed the collapse of Lehman Brothers Holdings Inc. The plans, known as Basel-III, would more than triple the core reserves lenders must hold to absorb losses.
"The financial crisis has changed the debate on banking pay to being ever more emotional and political," said Peter Hahn, a professor of finance at London's Cass Business School and a former managing director at Citigroup Inc.
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"Underneath the EU suggestions is a fundamentally different view of banking as less capitalism and more utility," Hahn said in an e-mail. The proposal makes the strong suggestion that if you get paid more than a certain amount, "you are probably doing something or taking more risk than the EU wants in a bank."
Karas's proposal to cap bonuses must be agreed upon by lawmakers in the parliament and by national governments, before it can become law.
"There is going to be a conflict" with governments over the pay curbs, said Udo Bullmann, who is following the law for the parliament's Socialist group. Both Bullmann and Philippe Lamberts, who is following the law for the parliament's Green group, are backing the proposal.
Financial firms worldwide have been giving in to pressure to limit bankers' compensation in response to the credit crunch.
Bank of America Corp. cut Chief Executive Officer Brian T. Moynihan's compensation for 2011, granting him no cash bonus and freezing his salary, a person briefed on the matter said in February. Deutsche Bank AG told employees it will impose a 200,000-euro ($263,000) cap on bonuses this year, three people with knowledge of the discussions said in February.
Lawmakers are also seeking a compromise on how much freedom national regulators should have to force their banks to hold more capital than required by the EU.
A possible compromise, Karas said, would be that individual nations could impose capital surcharges on so-called systemically important banks that would roil markets if they failed. Regulators may require such lenders to meet capital surcharges representing as much as 3 per centage points of their assets, weighted for risk, he said.
Under his plans, national authorities could also force other lenders to hold more capital, with the European Commission allowed to veto such decisions within three months of their enactment.
The parliament committee is scheduled to vote on the draft law on April 25. The Basel committee brings together banking regulators from 27 nations including the U.S., UK and China. Its rules must be written into national laws before becoming enforceable.