By PETER TABERNER
Nov 18 2012
The European Council and Parliament are set for showdown talks on the 20 November due to their disagreements over the capping of bankers’ bonuses following the ECOFIN meeting.
MEP’s have come out in favour of ratio of 1:1 between the level of bonuses that can be paid compared to the full salary over a year, Michael Barnier the commissioner for the internal market has backed the MEP’s in saying that member states should soften their stance towards them, and has asked for a compromise to be found.
Sources at the Parliament have also said that a middle ground is the most favourable outcome over the issue, and hope that the 20 November meeting will lay the groundwork for a deal to be brokered.
It is expected that negotiations between both parties will continue after the first meeting, with the imbroglio resolved hopefully before the 4 December ECOFIN meeting that will be the last one of this year.
The Council say that they do not necessarily disagree with the cap, but wish to implement a deferral principle, where bonuses that are over the 1:1 ratio within a financial year can be passed over, and then paid within a five year period.
If bonuses amount to being over the proposed ratio then the Council say that they be should be capped at 300% over a year’s salary, although this can be extended to 500% if there is a majority vote of over half of company shareholders decide to increase the cap.
The advocated single supervisory mechanism (SSM) was also discussed at the ECOFIN meeting, where the ECB will have an overseeing role over all Euro zone banks while in close cooperation with national banking authorities.
Negotiations are continuing on how the SSM will affect non- Euro member states of the EU that will sit on the outside of the SSM, but still wish to maintain strong links with the supervisory system.
An EU official said : “This is still in the negotiating phase and there will have to be a lot of creative solutions to be discussed between now and the 4 December at the next finance minister’s gathering. Non-euro member states must have to accept that they will not have the right to vote on supervisory decisions.”
“It will be a system where the making of difficult choices will be made by the governing supervisory body, the non euro states who still have ambitions to join the euro will be safeguarded from conditions becoming too difficult to be included in the future.”
Any decision taken on this issue will require unanimous support from the ECOFIN meeting next month.
To meet the end of year deadline meetings continue over the “Basel II” agreement, approved by the G20 in November 2010, and concluded by the Basel Committee on banking supervision in line with articles 114 and 53(1) of the Treaty on the Functioning of the European Union. Focusing respectively on the functioning of the internal market as agreed by the Parliament and Council, and the liberalisation and mutual recognition of professional qualifications.
The vision is to rearrange two legislations into law adhering to “Basel III” from the “CRD 4" package, that aims to amend the EU's rules on capital requirements for banks and investment firms. They are a regulation establishing prudential requirements that institutions need to respect, and a directive governing access to deposit-taking activities.
Also discussed was the common resolution authority and a common deposit guarantee scheme, in line with the pledge at the October ECOFIN meeting that both legislations’ legal framework will be decided by 1January next year, the Council say that negotiations are progressing well and hope to meet their deadline.
The European Banking Federation (EBF) has kept a close eye on developments this week, A spokesperson said: “Given that the Basel Committee (BCBS) is finalising its adjustments to the Liquidity Coverage Ratio , it seems wiser to wait for the final version before setting the details lest the EU applies different criteria to other jurisdictions. We would highlight two issues of great importance to the EU economy, the run-off factor envisaged in the BCBS for retail customers should be applied without further restrictions, for example to all individuals regardless the amount of the deposit and to all SMEs with a turnover of less than EUR 50 million.”
“We have consistently advocated strong support for the single rule book in order to create a level playing field for EU banks and reduce their heavy administrative burden. Our ultimate aim is the creation of a true single market in financial services, not the fragmentation of the financial services market. Strengthening of the single market in financial services via further supervisory integration in the European Union is a main priority for the EBF, and the proposal for a Single Supervisory Mechanism under a Banking Union is a vital step in that direction.”
The EBF would adhere to more of what the European Council is proposing for bankers’ bonuses, with companies having the right to decide on pay and approve remuneration schemes. Any further restrictions that are suggested should not be too draconian, as that may drive away talent and imbalance a global market.
“We think that the objectives pursued at International level and the European Commission, namely ensuring that remuneration schemes are more strongly integrated components with a long-term incentive effect and appropriate risk character, in order to ensure that excessive risk-taking is not encouraged, are right from a risk perspective.” The spokesperson added.
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