Brussels, 05/03/2013 (Agence Europe) - On Tuesday 5 March 2013, the ECOFIN Council confirmed the agreement in principle reached by representatives of the European Parliament and Irish Presidency of the EU Council of Ministers on the CRD IV bringing the Basel III prudential banking rules into the EU (see EUROPE 10796). In order to reach agreement among all 27 member states, including the United Kingdom, “technical” amendments are still possible later in the month on the bonus rules, changes to which will be postponed. The idea is for the CRD IV rules to come into force in time for the eurozone bank supervisory system to get up and running in early 2014.
The conclusion of the debate was that there is broad political agreement on the directive - the Presidency achieved agreement, said Irish Finance Minister Michael Noonan. Internal Market Commissioner Michel Barnier commented that the draft legislation still needed working upon so the ministers were discussing draft compromises and the work would now be completed using the draft compromises that were now more or less fixed. It was hoped this could be done later this month. Alongside bonuses, Barnier said that several member states had raised the question of exactly when the new rules would come into force (currently scheduled for 1 January 2014). The Netherlands said it would take a year to get the legislation added to its own rule-book.
During the debate, all eyes were on the United Kingdom, the only member state officially opposed to the draft compromise. Delighted with the compromise allowing member states to set stronger capital requirements than those laid down by Brussels, British Finance Minister George Osborne said he was concerned about the bank remuneration measures that had been introduced late in the legislative process (by the European Parliament: Ed.). Osborne said he understood the general public's anger, which justifies taking measures to make bankers accountable and ensure their pay is more linked to performance. He said there were very strict rules on bonuses in the UK, which has a much more transparent system than in many other financial centres. He said the current measures would push pay up.
For this reason, Osborne refused to approve the draft compromise. Germany and Sweden hoped that the technical amendments would make it possible for the Council to reach unanimous agreement.
It has now been agreed that EU rules will set a cap on variable pay for bankers. The basic idea to be incorporated in EU rules is that a banker's bonus shall not be higher than fixed pay, but it can be double fixed pay (2: 1 ratio) if the majority of bank shareholders approve of this. The rules will come into force in 2014 for banks in the EU, their subsidiaries outside the EU and European subsidiaries of non-EU banks.
Noonan said there were ambiguities of a technical nature to the bonus rules. Technical talks on bonuses will cover bonuses in the form of bonds that cannot be redeemed for five years and which are convertible if the bank goes under (“bail-in-able instruments”), which it would be possible to use to go beyond 2: 1. The compromise sets 25% as the cap on the portion of bonus that is deferred, but the member states and, apparently, MEPs too realise that such an upper limit is incongruous in terms of encouraging stability.
Othmar Karas (EPP, Austria), EP rapporteur on this matter, said: “Today's debate in Council apparently shows an internal problem of the Council not a problem with the Parliament. If today's Council debate hampers the draft of the final law text, Parliament will anyhow submit the compromise package to a plenary vote in April”. The leader of the EP, Martin Schulz of Germany, tweeted: “Regret Council has not been to able reach agreement on CRD IV. The cap on #bonuses will make the economic system much fairer and safer”. MEPs in the S&D Group expressed disappointment and indignation that the ECOFIN Council had been unable to take a firm decision about bank bonuses.
The main aspects of the legislation: banks will have to increase their top quality own capital from 2% to 4.5% of total assets; capital requirements may be set of up to 8% of assets by the member states; banks will have to have a float of cash to cover liquidity needs for 30 days (the short-term liquidity ratio will be phased in by 2018); and transparency rules will require banks to provide country-by-country breakdowns of profits and taxes. (MB/transl.fl)