ECOFIN Council Endorses EU Bankers’ Bonus Cap

Author:Mr Bryan Dunne, John Dunne and Paul Glenfield

At an ECOFIN Council meeting held on 5 March 2013, finance ministers broadly endorsed the proposed bonus cap provisions that form part of the political agreement on reform of the EU's rules on capital requirements for credit institutions, the Capital Requirements Directive IV (CRD IV).

The directive was hammered out in February by the European Parliament and the Irish Presidency, which negotiated on behalf of the Council.

Under the CRD IV package, bonuses will be capped at a ratio of 1:1 fixed to variable remuneration, i.e. bonuses are equal to fixed salary. This ratio can be raised to a maximum of 1:2. However, this will require the support of at least 66% of a quorum of shareholders who control 50% of the shares. Where a quorum cannot be reached, the measure can approved where it is supported by 75% of shareholders present.

For the purpose of applying this ratio, variable remuneration may include long-term deferred instruments which can be clawed back. The European Banking Authority (EBA) is to prepare guidelines on applying the instruments.

Such measures are to apply to all European Banks, including those operating outside the European Economic Area and European Free Trade Area, as well as foreign banks...

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