Banker bonus curbs backed by the rest of the European Union imperil efforts to make lenders more resilient in crises, the U.K. said in a new attack following Chancellor of the Exchequer George Osborne’s defeated bid to block the measures.
The limits banning bonuses more than twice fixed pay “will be damaging to financial stability and the soundness of affected credit institutions” and “are not consistent with internationally agreed principles,” the U.K. said in a statement to the EU’s Council of Ministers, published on the EU’s website.
Britain also criticized the broader legislation containing the pay rules, saying it may fail “in certain significant areas” to properly implement global standards agreed on by the Basel Committee on Banking Supervision. The Basel group has promised to report on whether the final version of the EU rules clashes with an international accord known as Basel III.
The U.K., which lacks a veto on financial laws, was the sole dissenting voice opposing a deal struck between governments and EU lawmakers last month on how to apply the Basel rules -- which more than triple the core reserves that banks must hold against possible losses. The European Parliament insisted on adding the pay curbs in a bid to stop excessive bonuses that it said spurred irresponsible risk taking.
The U.K. government’s representation in Brussels declined to specify which parts of the EU’s interpretation of Basel III wouldn’t be in line with international guidance.
Osborne and U.K. diplomats had argued the bonuses plan could drive up fixed salaries at banks and damage the competitiveness of the nation’s financial services industry.
“This piece of legislation is a monster, I wouldn’t be proud of it at all,” Karel Lannoo, chief executive officer of the Centre for European Policy Studies in Brussels, said in reference to the draft EU law. “It is not Basel III compliant, there are some very serious differences.”
Lannoo said the EU plan imposes less tough capital rules on banks’ insurance arms, it allows lenders to escape capital requirements on their holdings of sovereign debt, and it doesn’t include a firm commitment to introduce binding limit on bank indebtedness.
“We consider CRD IV to be fully compliant with Basel III,” Chantal Hughes, a spokeswoman for Michel Barnier, the EU’s financial services chief, said in an interview. “The rules have been calibrated to take account of the fact that the EU will apply them to all its banks, far more than required by Basel,” Hughes said. CRD IV is the name of the EU law to implement the Basel pact.
The Basel committee brings together regulators from 27 nations including the U.K., U.S. and China to set common standards for their banks. The group doesn’t have the power to force countries to apply its rules. It can investigate how well the measures are being applied and publish its findings.
Amid U.K. opposition to the bonus curbs, the country’s banks have faced criticism for the way they reward staff.
Barclays Plc, the U.K.’s second-largest lender by assets, paid investment bankers bonuses “incapable of justification” as employees focused on revenue at the expense of clients, according to an internal report.