Brussels, 20/02/2013 (Agence Europe) - On Tuesday 19 February, representatives of the European Parliament and the EU Council of Ministers failed to reach agreement on the draft CRD IV legislation to introduce the Basel Committee agreement on bank capital requirements (see EUROPE 10787 and 10784) because of the European Parliament sticking to its guns over its demand for a strict cap on bank bonuses, a politically sensitive issue that was not part of the initial draft legislation. If agreement is not reached on Wednesday 20 February, the Parliament says it will vote against the Karas Report in first reading.
“The European Parliament's negotiation team regrets that a compromise deal with the Council was not possible at the trilogue yesterday, as the Council Presidency did not have a sufficient mandate. We were surprised to hear that only last Thursday (14 February), COREPER discussed political compromises for the first time, which had been found much earlier between the EP and previous Council presidencies,” explained the Parliament's negotiating team, comprising Othmar Karas (EPP, Austria), Udo Bullmann (S&D, Germany), Sharon Bowles (ALDE, UK), Philippe Lamberts (Greens/EFA, Belgium) and Vicky Ford (CRE, UK) on Wednesday, regretting that “in yesterday's (19 February) negotiation meeting, the Council Presidency re-opened political compromises concluded before between the Council and the Parliament, amongst others on the cap on the ratio of variable to fixed remuneration” on which agreement had been reached at the end of 2012 under the Cypriot Presidency.
The Parliament is refusing to budge on bank bonus payments, wanting the 8,000 banks in the EU and their subsidiaries outside the EU (along with foreign bank subsidiaries in the EU) to ensure that variable pay is not higher than fixed pay, but exceptionally allowing bonuses to be double annual pay if two-thirds of the bank shareholders agree to it. The exact voting details of what comprises a quorum for such a vote among shareholders has yet to be decided.
The MEPs reject the Irish Presidency's idea of allowing bonuses to be three times fixed pay (ratio 1: 3) if shareholders go along with it or 1: 2 if bonus definitions are not added to long-term financial instruments and can be converted into debt in the event of bank failure ('bail-in-able instruments'). A Parliament source involved in the talks says neither of these options has been supported by the Parliament.
Fearing damage to the City of London, the United Kingdom, backed by the bank lobby, is putting great pressure on its partners and the Parliament to avoid strict rules being introduced on bonus payments and has introduced counter-proposals for the 1: 2 ratio being called for by the Parliament to not apply to the time-delayed bonuses related to banks' medium-term performance.
The Parliament says that it has been agreed with the Council Presidency that five areas will be discussed at the meeting on the 27th: 1) flexibility for member states to impose stricter rules on banks in certain areas of the CRD IV; 2) additional capital buffer requirements for systemically important financial institutions; 3) the power of the European Banking Authority (EBA) to mediate on its own initiative in conflicts between national competent authorities; 4) the Parliament's suggested caps on bank bonus payments; and 5) greater transparency on a country-by-country basis in terms of profits, tax and aid.
Transparency. The fifth measure is backed by the European Commission and the Parliament, which say it complies with the demand by France, the UK and Germany at last week's G20 Summit for more binding transparency requirements for banks (see EUROPE 10788), but it is being attacked by the bank lobby because it would reveal to the general public the creative accountancy used by banks to minimise taxes by shifting profits to other countries. Some countries are resisting the transparency rules on the grounds that they would be difficult to apply and very complex, preferring a separate accountancy directive (like the one for EU mining companies requiring communication of bribes and other payments to countries outside the EU that exceed $100,000.
The Parliament's demand for the full introducing of the increased short-term bank liquidity ratios to be brought forward to 2018 from 2019 has now been agreed to by the other EU institutions. (MB and FG/transl.fl)