Brussels, 28/02/2013 (Agence Europe) - Representatives of the European Parliament and member states reached agreement in principle in the evening of Wednesday 27 February on the CRD IV draft legislation to introduce into the EU the Basel Committee agreement on bank capital requirements for the 8,000 or so banks in the European Union (see EUROPE 10790). EP has won its way on bank bonuses and, if confirmed, the final version of the new rules will be endorsed by the EP in April.
EU Internal Market Commissioner Michel Barnier welcomed the agreement on a fundamental body of uniform rules put in place by the EU to deal with the financial crisis, which would make European banks more robust and transparent, he said. “In these negotiations, as Presidency, we have had to balance many different interests: the desire to limit bankers pay while maintaining a competitive European banking sector; the need to provide a single but sufficiently flexible rule book across Europe”, said Irish Finance Minister Michael noonan
EP rapporteur Othmar Karas of Austria listed the changes made by the new rules. Banks will have to increase their top quality capital from 2% to 4.5% of total assets; capital requirements can be set as high as 8% of total assets if member states introduce additional rules; banks will have to have enough cash to cover cash flow for 30 days (the short-term liquidity ratio will be phased in by 2018); transparency rules will require banks to communicate details of profit and tax country-by-country; bank bonuses must not exceed fixed pay but exemptions will be possible to allow bonuses to be up to double fixed pay.
“Legislation resisted tooth and nail by industry. We won on capital. On binding liquidity and liquidity cap, they won, with Draghi as ally. EC will come up with proposal. They lost on bonus and country-by-country transparency”, commented Philippe Lamberts (Greens/EFA, Belgium). He said that apart from the bonus question, the battle should not be seen as between the UK and the rest of Europe.
Bonuses. Under pressure from MEPs, EU legislation will set a cap on bank bonuses for the first time. The UK is unhappy about the impact of this on the City of London, and so are banks on the continent, which have strongly resisted the measure. It was the most haggled-over aspect of the inter-institutional deal.
The new rules will state that bankers' bonuses must not be more than fixed pay, but can double fixed pay if shareholders representing 50% of total shareholders vote in favour. If the quorum is not reached, then at least 75% of those present must vote in favour. A quarter or third of the bonus can be bonds of longer than five years that can be convertible, “bail-in-able instruments”, if the bank collapses. The European Bank Authority (EBA) will decide on how such instruments are to be defined in line with inflation, risk-taking and the bonus system itself to allow banks to pay bonuses of double fixed pay.
The rules will apply to banks in the EU27, their subsidiaries in other countries and non-EU banks registered in the EU in 2014. Barnier welcomed the end of crazy and evil bonuses. It is not yet clear how the measure will affect job contracts in the EU. Some 9,000 people in the EU receive bonus payments, but only a hundred or so will be covered by the rules, said Lamberts. Udo Bullmann (S&D, Germany) said some 500 managers of Deutsche Bank and 50 managers of Commerzbank would have their bonus payments cut. He welcomed the fact that banks will be forced to pay less out in bonuses and more to the real economy. Vicky Ford (ECR, UK) expressed concern that the bonus rules would also apply to non-EU banks with branches in the EU because the EU shouldn't set rules for banks from other parts of the world. She feared the move would lead banks to relocate, but approved of the very short review period for the new bonus rules.
Reacting to the bonus deal, British Prime Minister David Cameron said: “We will look carefully at the outcome of the negotiations. We need to make sure that regulation put in place in Brussels is flexible enough to allow those banks to continue competing and succeeding while being located in the UK” and the UK expressed concerns at the Coreper meeting on Thursday.
Transparency. European banks will be required to provide information to the European Commission about profit, tax and state aid on a country-by-country basis for each country where they do business. This will apply only to the bigger banks from 2014, and to all banks across the board frm 2015. The measures allowing countries to set higher capital requirements remain unchanged.
Under the agreement reached in the three-way talks, the European Banking Authority will be authorised to intervene in the event of disagreement between national supervisory bodies in a large number of domains.
The special measures on capital will apply to the bigger banks. Lamberts said that the dozen or more global European banks would be required to have a capital buffer of between 1.5% and 3.55% of assets, while the same bank could be covered by both types of measures. The fact that these are additional capital requirements has been recognised without adding additional buffers that would make them unreasonable, said Lamberts.
Flexibility. The chair of the European Parliament's economic and monetary affairs committee, Sharon Bowles (ADLE, UK), said it was important that member states be allowed to set additional capital requirements for their banks if the economy overheats or there are bubbles on the housing market.
Fearing that it would undermine the Single Market, the European Commission fought long and hard against such flexibility and when countries wish to set additional rules, they will have to notify the Commission in advance and await its opinion, along with that of the ECOFIN Council. Commenting on the legal ambiguity that would arise if the Council of Ministers failed to issue an opinion, Barnier said the Commission had reservations. (MB/transl.fl)