EU countries consider reforms to cap banker bonuses

BRUSSELS (REUTERS) - Bankers' bonuses could be capped under plans examined by EU countries this week, as politicians attempt to placate public anger and tighten controls over an industry blamed for its role in a global financial crisis.

The proposals, part of a drive to implement so-called Basel III rules aimed at preventing a repeat of the 2007-09 crisis, would cap banker bonuses at the level of their salaries to stop huge payouts from encouraging excessive risk-taking.

However, bigger bonuses - up to twice the banker's salary - would be possible if shareholders agreed, according to an internal document obtained by Reuters.

The issue has been gathering momentum across Europe and the United States since US mortgage debt triggered the bursting of a global credit bubble more than five years ago, leading social activists and many investors to challenge the multi-million-dollar packages awarded to bankers and business leaders.

The proposals are outlined in a report, prepared by diplomats from Ireland, which holds the rotating EU presidency.

If agreed, the plan would see an unprecedented tightening of EU law to curb banker pay as soon as the beginning of next year.

It would be the first such absolute cap on pay in Europe.

Earlier reforms have forced bankers to wait longer for bonuses to prevent them taking excessive risks to bolster their pay.

For such a change to happen, however, countries such as Britain would first have to be convinced. Britain, home to the region's biggest financial centre, London, has argued against a cap but accepts shareholders should have more say in banker pay.

Irish diplomats will outline the plans at a meeting of member state ambassadors on Thursday, as they attempt to strike a compromise between demands for pay curbs of the European Parliament and the desire for a more gentle tack among some EU countries.

In the report obtained by Reuters, dated February 8, officials write that they wish to test countries' willingness to compromise with the European Parliament.

The Basel III rules, part of a drive by regulators across the world, would also force the European Union's 8,000 banks to triple the amount of capital they hold compared with before the crisis, in the hope that would make them strong enough to cope with market shocks without the need for a repeat of taxpayer-funded rescues.

The implementation of the rules in Europe had originally been planned for the start of this year, but it has now been postponed to January 1, 2014 and could take longer still if countries are not ready.

The delay means banks and investors are left in the dark for longer about the exact impact of new rules on future profitability as actual laws are likely to diverge in some respects from the Basel accord.

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