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Latest update : 2010-06-30

EU lawmakers have approved tough new rules that limit the amount of bonus money bankers will receive upfront and make the rest contingent on long-term performance.

AFP - The European Union will slash all bankers' and traders' bonuses from January 1 next year, after the European parliament gave its final go-ahead to tough new laws on Wednesday.

After months of negotiations between national governments and the parliament in Brussels, all bonuses awarded or paid across Europe's financial sector will now have to be broken up.

This means a far lower proportion of cash in the bonus, far less payable upfront and remaining sums "contingent" on subsequent company performance as well as directly linked to salaries.

To meet the terms of the new law, 60 percent of bonuses should be variable and for future payment only, with "at least 40 percent" of such revenue locked away for three years, according to the legislative text.

"Two years on from the global financial crisis, these tough new rules on bonuses will transform the bonus culture and end incentives for excessive risk taking," said Arlene McCarthy, who led the negotiations for the parliament.

"A high-risk and short-term bonus culture wrought havoc with the global economy and taxpayers paid the price.

"The public want banks to prioritise stability and lending over their own pay and perks.

"In the last two years the banks have failed to reform, and we are now doing the job for them," she underlined in a statement.

Bonus-like pensions will also be covered to avoid "bankers walking away from disaster with an enormous cash pension pot," the parliament said, adding that special measures will apply for bailed-out banks.

Finally, it said, "new capital rules for re-securitisations and the trading book will ensure banks are properly covering the risks they are running on their trading activity, including for types of investments like mortgage-backed securities that were central to the crisis."

In Britain, a newly-introduced 50-percent tax rate already applies to all bank employee bonuses above 25,000 pounds (27,700 euros, 37,600 dollars).

Chief executives at Britain's five biggest banks -- Barclays, HSBC, Lloyds Banking Group, Royal Bank of Scotland and Standard Chartered -- said in March they had spurned bonuses for last year worth millions of pounds.

Across the Atlantic, US President Barack Obama wants to impose an 80-billion-dollar domestic banking levy.

However, a drive by Britain, France and Germany for a punitive global tax on the world's biggest banks ran into the sand at the weekend.


Date created : 2010-06-30


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