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18 March 2010

CRD III draft report on first ECON Committee exchange of views

Rapporteur Arlene McCarthy(S&D/UK)wants to follow the FSB principles on remuneration. She is proposing that bonuses be awarded on the basis of long-term performance and not be guaranteed. There should be no 'golden parachutes’ rewarding failure.

This third revision of the Capital Requirements Directive was adopted by the Commission on 13 July 2009. The main elements of this proposal are:
·         the introduction of explicit rules and appropriate supervisory measures and sanctions regarding remuneration policies. These include bonuses and preventing policies which encourage unacceptable risk
·         reinforced capital requirements for items in the trading book
·         upgraded capital requirements for re-securitisations
On remuneration, CRD III rapporteur Arlene McCarthy (S&D/UK) presented her report following which she proposes following FSB’s principles on remuneration. She proposed new principles not included in the FSB. These are:
·         Bonuses must be awarded on the basis of long-term performance and not be guaranteed, with no 'golden parachutes' rewarding failure.
·         Maintaining a firm's stability must be its priority; therefore’ a firm’s bonus payments must not limit its ability to strengthen its capital base.
·         The FSB principles apply special measures to banks in receipt of exceptional government support. In order to prevent moral hazard, firms should be obliged to repay taxpayers, strengthen their capital base and only then be able to pay bonuses to their directors.
·         There must be an appropriate balance between bonus and salary; in particular, an individual's bonus must not make up more than 50 per cent of their total annual remuneration.
·         At least 50 per cent of a bonus must be paid in shares. In line with Commission Recommendation (2009)3177, the shares must be retained for at least three years.
·         A substantial proportion of any bonus must be deferred for a period commensurate with the business cycle of the products traded. The deferred proportion should be clawed back in the event of underperformance.
Vicky Ford (ECR/UK) asked why only Europe should apply these principles and why only banks. If member states want to go further than the G20 recommendations, then this should be a member state decision and not a European decision.
Pascal Canfin (Greens/FR) agreed overall with McCarthy’s report. Bonuses should not be given to bailed out banks,  he said.

© European Parliament

Documents associated with this article

CRD III draft report.pdf
CRD III Leg_Proposal_Adopted_1307.pdf

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