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.

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

the European Sting Milestones

Featured Stings

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

Chart of the day: This is how many animals we eat each year

4 ways blockchain will transform the mining and metals industry

Ecofin: ‘The Friday battle’ for the banking union

Globalization 4.0 means harnessing the power of the group

Idai disaster: Stranded victims still need rescue from heavy rains as UN scales up response

Relieving the suffering of dying: Home Palliative Care as a spiritual coping strategy

UN chief welcomes establishment of inclusive government in Central African Republic

These companies can recycle nearly anything, from cigarette butts to fax machines

How China’s sponge cities are preparing for sea-level rise

10 months were not enough for the EU to save the environment but 2 days are

AI could be a silver bullet for healthcare in ASEAN

‘Everyone must be on board’ for peace in Central African Republic: UN’s Lacroix

Lagarde: Keep feeding the banks cut down wages and food subsidies

‘Negative forces’ at work in DR Congo threaten ‘largely peaceful’ relations across Great Lakes region, says outgoing UN envoy

Human rights champions from across the world receive top UN prize

UN chief highlights action across borders for ‘stable and prosperous Eurasia’

Importance of teaching ethics in Brazilian Medical Schools

Nearly a third of the globe is now on Facebook – chart of the day

Instability in Africa’s Sahel, spreading outwards, Security Council told

Trump fines China with $50 billion a year plus some more…

Innovating together: connectivity that matters at ITU Telecom World 2019 – in association with The European Sting

Benefits of rural migration effect often overlooked, new UN report suggests

Hydrogen power is here to stay. How do we convince the public that it’s safe?

rescEU: EU establishes initial firefighting fleet for next forest fire season

Marriage equality boosted employment of both partners in US gay and lesbian couples

Mosul’s ‘3D contamination’ adds to challenges of deadly mine clearance work

‘Once lost, hearing doesn’t come back,’ World Health Organization warns on World Hearing Day

UN Security Council welcomes results of Mali’s presidential elections

We need a global convention to end workplace sexual harassment

MWC 2016 LIVE: Ingenu steps up efforts to build LPWA networks across the globe

Financial services: Commission sets out its equivalence policy with non-EU countries

Why a multi-stakeholder approach is essential to our risk resiliency

Further reforms will move Slovakia toward a more innovative and inclusive society

Human rights chief calls for international probe on Venezuela, following ‘shocking accounts of extrajudicial killings’

Three myths keeping government procurement stuck in the past

We need new tools for the Big Data era

This AI-powered app aims to help people with autism improve their social skills

Draghi to lay his print on long term ECB policies prior to exiting next year

These are America’s most dangerous jobs

Now doctors can manipulate genetics to modify babies, is it ethical?

Informal meeting of heads of state or government, Sibiu, 09/05/2019

On World Bee day, human activity blamed for falling pollinator numbers

Why Italy will not follow the Greek road; Eurozone to change or unravel

Central African Republic militia leader and football executive, transferred to ICC

Brexit: the time has come for the UK to clarify its position

We need a reskilling revolution. Here’s how to make it happen

Why Renewable Energy is an attractive investment

Britain aligns with EU rivaling US on trade and Iran, abandons bilateral ‘Midsummer Night’s Dream’

Migration and the climate crisis: the UN’s search for solutions

How will the EU face the migration crisis when the Turkish threats come true?

UN boosts humanitarian appeal to help tackle Zimbabwe’s ‘worst-ever’ hunger crisis

UN’s AIDS agency ‘greatly encouraged’ by latest scientific breakthrough showing cure is possible

How Japan became the world leader in floating solar power

I have a rare disease. This is my hope for the future of medicine

ECB bets billions on Eurozone’s economic recovery

Global economy to see ‘steady’ growth of three per cent in 2019 despite risks, says UN

More women and girls needed in the sciences to solve world’s biggest challenges

Guterres censures terrorist attacks in Nigeria, pledges UN ‘solidarity’

Torture is unacceptable and unjustified ‘at all times’ underscore top UN officials

European Elections: “Web giants” are urging users to vote

More Stings?

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