Earlier today the European Parliament's Economic and Monetary Affairs Committee announced that it approved revisions to a draft directive proposed by the European Commission that would impose new restrictions on banker compensation and increase bank capital requirements for trading portfolios and re-securitizations. The proposed rules relating to banker compensation would:

  • For banks receiving taxpayer support, cap directors' salaries at €500,000 and prohibit directors from receiving bonuses until taxpayer funds were repaid;
  • Cap bonuses at 50% of a person's total compensation;
  • Prohibit full bonuses from being paid upfront based on expected profits and require that a portion of the bonuses to be deferred for a period in line with the activities of the trader (no less than 5 years);
  • Require at least 90% of non-deferred income be paid as contingent capital which the bank could call upon in case of difficulties;
  • Limit cash bonuses to 6% of the total bonus; and
  • Obligate the EU and national supervisors to benchmark financial sector remuneration policies, so as to "provide a clearer overall picture of remuneration practices Member States by Member State and bank by bank, with a view to pinpointing the potential build-up of risk."

Following further negotiations with the European Council and the EC, the rules are expected to be put to a plenary vote in July. Committee chair Sharon Bowles (ALDE, UK) said "I want banking to return to the idea that existed in private banks when partners had their own money on the line and had a vested interest in the long-term health of the bank. If bankers and traders want to leave and go to other jurisdictions, it just shows that they do not have confidence in their own performance. To those that would leave I say good riddance.”