EUROPE - Next week's plenary session of the European Parliament is set to approve the EU's latest version of the Capital Requirements Directive after an agreement yesterday following three-way talks in Brussels.
The new directive, finally cleared by the Council, stipulates that all senior managers, risk takers and risk controllers will be subject to a two-way constraint on bonuses. At least 40% of the bonus must be deferred for a minimum of 3-5 years and no more than 30% can be paid in cash. (See previous IPE article Amended EU directive targets risks in bank bonuses)
Furthermore, banks will need to report the number of people earning over €1m and there will be extra tests for directors of banks in receipt of "exceptional government intervention", in other words, banks bailed out by governments.
The new rules will be implemented during next year and there will be a two year transition period for updating the trading book positions. Vicky Ford MEP, a centre rightist and shadow rapporteur for the proposal, said the agreement means banks to hold approximately three times as much capital against trading books than before the economic crisis.
Arlene McCarthy MEP, rapporteur for the draft proposal, believes CRD III is in perfect alignment with provisions set by the Basel Committee, and on re-securitisation - – derivatives based on securitised tradeable financial instruments. Its predecessor, CRD II, had formalised definitions of securitisation.
"In the last two years the banks have failed to reform. We are now doing the job for them," McCarthy told IPE.
Representatives of the Council of Ministers, the European Parliament and the European Commission have negotiated on the proposals for the past two days. Council members had failed to reach agreement over the issue of bonuses for bankers, despite the fact that this issue had already cleared through the Parliament's Economic and Monetary Affairs committee.
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