EU Nears Deal on Basel Rules After Clashes on Bonuses
European Union finance ministers neared an accord on a wide-ranging plan to strengthen bank capital requirements as they wrangled with U.K. Chancellor of the Exchequer George Osborne over proposed curbs to bankers’ bonuses.
“I can’t support the proposal currently on the table, but I hope if we make progress over the next couple of weeks that we have a proposal I can support,” Osborne said in Brussels. Other nations backed the deal, with German Finance Minister Wolfgang Schaeuble endorsing a last search for common ground.
Ireland, which holds the EU’s rotating presidency, pledged to iron out the last elements of the agreement in coming weeks. EU nations will seek technical adjustments to the timing for adopting all the new rules, as well as on how big a slice of banker bonuses can be eligible for a combination of deferred payment and favorable accounting treatment.
“We will explore the possibility of nuancing the agreement so that it has a wider level of support,” Irish Finance Minister Michael Noonan told reporters today.
Pay rules were a late addition to EU legislation on how it will apply global rules drawn up by the Basel Committee on Banking Supervision. Talks had dragged on for 18 months before the Irish presidency negotiated the bonus agreement, which says bonuses can’t be bigger than salaries unless certain conditions are met, in order to move the broader effort forward.
European Parliament members won’t agree to go beyond last week’s hard-fought compromise, said Othmar Karas, the lead lawmaker on the capital rules, and European Parliament President Martin Schulz. Both lawmakers said the measure would go before the legislature for a vote in April based on the existing framework.
“I deeply regret the fact that the Council has not been able to reach agreement,” Schulz said today in a statement. “The European Parliament negotiators consider that an agreement has been reached on all aspects of the legislation including on bankers’ bonuses.”
EU Financial Services Commissioner Michel Barnier said it’s “crystal clear” that banker bonuses will face limits in line with the framework agreed with lawmakers last week. In a press conference in Brussels, he said any remaining adjustments would be “technical points” that don’t undermine the deal.
Banks have criticized the bonus limits as a threat to competitiveness, particularly since EU-based lenders will be bound by European limits for employees all over the world.
Luxembourg, Austria and Sweden endorsed efforts to find a solution that would ease the U.K.’s concerns before the new rules take effect if possible, since London banks will be most affected by the changes. At the same time, the EU shouldn’t delay the new capital rules indefinitely, Swedish Finance Minister Anders Borg told reporters in Brussels today.
“We would argue that we should make an extra effort if it would be possible to get the U.K. on a compromise,” Borg said. “If there’s a need for some further technical progress, let’s try that. But at the end of the day, we are happy with the bank-bonus compromise as it is.”
Ireland is now drawing up a new text of the capital rules with an eye toward concluding the legislation by mid-year. The bill must be approved by a weighted majority of EU states and the Parliament.
Should the technical details of the law not be completed by March 22, the EU may miss its January 2014 deadline for the measures to take effect, the Irish presidency has said. The target date has already been pushed back by one year.
Barnier urged nations to stick with the Jan. 1 deadline, pledging accommodations for individual nations that need extra time to adjust. The Netherlands led calls for a longer transition period, saying 12 months was a more reasonable transition period than the six months included in current plans.
Dutch Finance Minister Jeroen Dijsselbloem said delays are possible, depending on how negotiations proceed. He said changes to pay rules could expand a 25 percent cap on the amount of a bonus that could benefit from special accounting rules if paid out after a five-year delay.
“This is still under discussion,” Dijsselbloem told reporters after the meetings. He said his nation would impose stricter rules than the EU standard as part of its own efforts to shore up financial stability, a pledge echoed by Denmark.
The draft deal includes an outright ban on bonuses that are more than twice fixed pay, with bonus payments limited to 100% of fixed pay unless certain conditions are met. The plan also would offer banks some leeway on how to apply the measure when parts of the award are deferred for at least five years.
Banks have warned that the bonus curbs would place them at a disadvantage in hiring the best recruits and force them to boost executives’ basic pay. The Association for Financial Markets in Europe, which represents international lenders including Deutsche Bank AG (DBK) and BNP Paribas SA (BNP), said last week the proposals would “have a negative impact on the real economy.”
The Federation of European Employers, which represents corporate human resources departments, said last week that the bonus curbs would go “beyond the powers vested in the European Union under the EU Treaty.” The treaty “clearly states that EU legislative powers shall not apply to pay,” the group said.
The European Commission said today that it was sure that the plans are legal, as the treaty provisions on pay apply to social policy, not bank regulation.
The EU “can make rules on financial incentives -- it has done it before in regulating sales commissions,” Sharon Bowles, chairwoman of the Parliament’s economic and monetary affairs committee, said in a telephone interview.
“The Parliament would have loved to put a cap on overall pay, but we backed off from doing that over doubts about legality,” she said. “In the past something similar has been attempted for footballers and they discovered it exceeds the treaty.”