The European Parliament has voted in favour of capping bankers’ bonuses.
It is part of a wide-ranging new financial reform law under which EU banks will be forced to boost the cash reserves they have to hold as a cushion against economic shocks.
The cap – which is due to come into force from the start of next year – will limit bonuses to no more than to one year’s base salary.
The exception is if a large majority of a bank’s shareholders agree, in which case it can be two year’s base salary .
This also applies to European units of foreign banks and those working for EU banks overseas.
European Parliament member Sylvie Goulard told euronews: “For over three years parliament’s been asking for the bank issue to be addressed. Finance ministers said it wasn’t necessary, and bit by bit we’ve realised there’s a very big problem in Europe’s banking sector, including a link between the sovereign debt crisis and the situation some banks are in. We’ve come up with something very reasonable – a ceiling on remuneration in the finance sector, including variable compensation, which is what led to the risk-taking.”
Britain, which is Europe’s largest financial center, strongly opposed the bonus cap but was outvoted by other EU countries.
The UK fears this will drive financial businesses away from the EU and particularly away from the City of London.
Critics of the cap say banks will just raise base salaries to compensate for the bonus limits.