At last some rules on banks

Press conference: Political agreement on the new European banking regulation CRD4 (Basel III) has been reached between the two EU legislators, the European Parliament and the Council of the European Union. (European Parliament Audiovisual Library).

Press conference: Political agreement on the new European banking regulation CRD4 (Basel III) has been reached between the two EU legislators, the European Parliament and the Council of the European Union (28.2.2013). (European Parliament Audiovisual Library).

The public outcry against bankers at last produced some tangible results in Brussels. According to a ground-breaking agreement struck between the European Parliament and the Irish Presidency of the Council of the European Union, bankers’ bonuses are capped at the double of their annual salaries. Secondly the capital requirements of the banks are increased to such levels, as to prevent their managers from undertaking extra risks with other people’s money.

The deal was announced by both the EU legislators and the Irish minister of Finance, Michael Noonan, who is currently presiding over the Ecofin Council. The new draft legislation after it is endorsed by the member states will be valid all over the European Union, Britain included, unless London chooses to opt out. As it was expected the first reactions from the London financiers and the City banking community was clear outrage.

But it was not only the financiers who disagreed. After the news broke out, the British Prime Minister David Cameron didn’t lose time and run to express reserves in relation with the possible negative repercussions, from the new draft rules, on the major international banks, based in Britain. He said that he expected the new regulation to provide flexibility in order to allow banks to compete internationally, while being based in Britain. In any case the agreement between the Parliament and the Council was not concluded in absentia of the UK Mission and delegates in the EU.

Fewer bonuses

But let’s return to the substance matter of the new laws. According to an EU Parliament press release, “bankers’ annual bonuses must not normally exceed their annual salaries and banks must hold more high quality capital to increase stability in the sector”. The new rules foresee an exemption for a banker’s bonus to exceed one annual salary and reach the highest allowed maximum of two salaries, only if this is authorised by holders of at least half of a the bank’s shares. In detail this higher ratio would require the votes of at least 65% of shareholders owning half the shares represented, or of 75% of votes if there is no quorum. Many European Parliamentarians fought for a 1:1 ratio from the outset.

More capital

Both those new really tough rules on banks’ capital adequacy and bankers’ bonuses have as a prime target to restrict excessive risk taking in the industry. This practice nearly destroyed the Atlantic economy during the past four years, because it increases the short-term profits and bonuses, but leads invariably to market bubbles and financial crisis.

The current problems of the Western economy, after the 2008 credit crunch in the US and the excessive sovereign debt in Eurozone, were the direct results of bankers’ carelessness. Bank managers and dealers didn’t and still don’t mind at all for the longer term implications of their extremely risky bets, as long as in the short run they turn out super profits and extra high bonuses.

To avoid a total destruction during the past four years European taxpayers recapitalised the banks who found themselves with insufficient capital to absorb losses. This overhaul of EU banking rules will make sure that banks in the future have enough capital, both in quality and quantity. On top of all that these standards have been agreed at G20 level in what is known as the Basel III agreement. The problem is however that the Americans have not yet adopted Basel II.

Ratification process

In any case the new draft legislation is expected to become law within some months, after the political agreement reached yesterday. Of course it has first to be approved by member states and the European Parliament plenary. This vote is expected to take place at the 15-18 April sessions. Once approved, member states would need to include the rules in their national laws by 1 January 2014. And mind you the new legislation will be applicable to all financial firms based in the EU and the approximately 8,000 banks operating in the 27 countries. Possibly at the exemption of Britain.

The dark side

There is no question that if those new draft rules are adopted Eurozone and the European Union as a whole will be a much safer place financially. On the other side of the fence however the strongest resistance and criticism is expected to come from the London’s City. In that square mile of British soil all the major international banking firms have a very strong presence. If Britain adopts these new EU rules their profit-making capacity will be drastically reduced.

the sting Milestone

Featured Stings

Can we feed everyone without unleashing disaster? Read on

These campaigners want to give a quarter of the UK back to nature

How to build a more resilient and inclusive global system

Stopping antimicrobial resistance would cost just USD 2 per person a year

We’re facing a ‘cold crunch,’ and it’s nothing to do with the polar vortex

Antitrust: Commission opens investigation into possible anti-competitive conduct of Amazon

The refugee crisis seen through the eyes of a young doctor from Turkey

European Youth Forum celebrates 20 years of fighting for youth rights

5 ways the digitisation of the global logistics industry can increase trade – and reduce poverty

Can Greece’s devastating economy deal with the migration crisis?

EU Emissions Trading System does not hurt firms’ profitability

Colombia: Rights experts condemn killing of reintegrated former rebel fighter, call for respect of peace process

EU cracks under the weight of its policy on the Ukraine-Russia nub

How the Great Famine inspired Irish people to help Native Americans in the fight against COVID-19

UN monitoring team in Yemen verifies pullout of armed forces from crucial port zones

230 Junior Entrepreneurs and over 70 guests attended the International Congress on “Entrepreneurial Skills for Youth”

More answers from Facebook ahead of Parliament hearing today

Why we need to redefine trust for the Fourth Industrial Revolution

Behind the firewall: a discussion on the evolution of cybersecurity in the utility industry

How sustainable infrastructure can help us fight climate change

New UN Global Climate report ‘another strong wake-up call’ over global warming: Guterres

Joint U.S.-EU Statement following President Juncker’s visit to the White House

State aid: Commission approves €380 million German rescue aid to Condor

‘Critical test’ for North Korea’s Government as civilian suffering remains rife, warns UN rights expert

Gender parity has a huge role to play in the fight to save our oceans

Chart of the day: These countries have the largest carbon footprints

EU out to conquer African Union summit

The four top Americans who flew to Europe perplexed things about Trump’s intentions

EU and New Zealand launch trade negotiations

eGovernmnet for more efficiency, equality and democracy

YouTubers are teaming up to plant 20 million trees

Young translators at EU schools – Commission opens registration for 2020 translation contest

Sherpa climbers carried out the highest-ever spring clean. This is what they found

Germany to re-invent its security position in Europe and a chaotic world

The Commission unsuccessfully pretends to want curbing of tax evasion

This Netherlands football stadium creates its own energy and stores it in electric car batteries

Colombia: Santos thanks the EU for its support to the peace process

COVID-19: Single market must emerge stronger from the crisis, say MEPs

COP21 Paris: The Final Agreement Adopted-full text

UN forum spotlights cities, where struggle for sustainability ‘will be won or lost’

This Hungarian man quit his job to clean up his favourite river

EU food watchdog: more transparency, better risk prevention

Political solution ‘long overdue’ to protect the children of eastern Ukraine

UNIDO promotes post-harvest excellence for mangoes in the Mekong River Delta of Viet Nam

2019 ‘a critical year’ for Somali politics and development says Security Council

Does Switzerland really need more medical students?

More, not less, multilateralism is needed to fight the coronavirus pandemic

Crisis hit countries cut down public spending on education

Facebook changes its terms and clarify its use of data for consumers following discussions with the European Commission and consumer authorities

MWC 2016 LIVE: Gamelab founder talks Apple TV, VR and monetisation

Africa shouldn’t have to choose between high growth and low emissions

Vaccine hesitancy: a pregnancy related issue?

Coronavirus vs flu: how do they compare?

$683 million appeal to deliver reproductive health services, where they’re most needed

Excise duties: Commission welcomes agreement on rules governing alcohol

What does ‘excess deaths’ mean – and can it give a clearer picture of the number of coronavirus fatalities?

The new European Union of banks is ready

Tokyo Olympics postponed to 2021 over coronavirus concerns

How speaking ‘parentese’ to your child could make them a faster learner

State aid: Commission approves €650 million Polish support to LOT in context of coronavirus outbreak

FROM THE FIELD: ‘Eco-warriors’ fight climate change in South Africa

DR Congo: Strengthened effort against Ebola is paying off, but insecurity still major constraint – UN health agency

Preparing medical students being digitally as well as socially responsible

Sweden is fighting loneliness by housing older and younger generations together

More Stings?

Advertising

Speak your Mind Here

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s