BRUSSELS (Reuters) - Bankers in Europe will not be allowed to take home more than a third of their bonuses in cash from the start of next year, under planned new rules, a leading EU lawmaker told Reuters on Tuesday.
The new regime, which goes further than American rules agreed on last week, would be the first cap on how bankers are paid and a victory for EU lawmakers who have otherwise become bogged down in efforts to regulate banking.
"The bankers have shown that despite the crisis, they are not able to show self-restraint. This law will do it for them," said Arlene McCarthy, the Labour-party lawmaker who negotiated tougher rules on behalf of parliament with European countries.
"This will transform the bonus culture," said the British lawmaker after concluding nine hours of talks to reach a compromise. "It is the first cap on how bankers are paid worldwide."
A spokeswoman for Spain, which holds the rotating EU presidency and negotiated the law for countries, said: "We have an agreement with the European Parliament. We are now consulting with member states tonight and hope to announce a deal shortly."
McCarthy said the key points of the deal reached on Tuesday are:
* The maximum amount of upfront cash in a bonus will be 30 percent, while for large bonuses it will be capped at one-fifth. A new watchdog for European banks will define what is a big bonus.
* The cap would ensure bonuses are linked to long-term performance rather than being cash rewards for short-term risk-taking. There will also be a clawback of bonuses, meaning a star trader, for example, would not get the full payout if his investments unravelled.
* Parliament has agreed with countries that they introduce the rules by the beginning of next year, to cover any bonus which is paid from January.
* At least half of bonuses must be paid in instruments that are tied to the strength of the bank, such as company shares or contingent capital, a type of I.O.U. or capital that can be turned into bank stock.
* Banks which have been bailed out by the state must limit bonuses paid to their managers.
* Directors at these groups will not receive any bonus unless it is justified to supervisors.
* Bank must set limits on bonuses related to salaries, on the basis of EU wide guidelines, to reduce windfall payouts by banks.
* Exceptional pension payments will be covered by bonus rules. "There can be no more Fred Goodwins," said McCarthy, referring to the former head of Royal Bank of Scotland "where bankers can walk away from disaster with an enormous pension pot."
* The package will also require higher minimum legal capital requirements for bank trading and resecuritisations, the repackaging of debt. Both measures would primarily hit investment banks.
"The public are rightly angry that taxpayer money has been paid in bonuses," said McCarthy. "Now banks must strengthen their capital base ... and repay taxpayers as a priority over paying bonuses."
The unraveling of resecuritised toxic debt triggered a banking crisis which later snowballed into the worst economic slump in a generation.
It was unclear whether the concerns of some of the European Union's 27 countries over caps on banker pay could dismantle the deal at the last minute.
Some had been concerned that the bonus curbs would put bankers in London and Frankfurt at a disadvantage to their rivals in New York.
If the agreement prevails, it would represent a small step forward for the European Union, which many believe has been slow to regulate an industry blamed for tipping the globe into recession.
European leaders want to champion the bloc as a model for ambitious regulation, but an impasse over hedge funds and watchdogs means the EU is struggling to draft laws while U.S. President Barack Obama has already agreed to rules on regulating finance.
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