Reuters: Regulatory News: UPDATE 1-EU's Barnier defends bankers' bonus cap

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UPDATE 1-EU's Barnier defends bankers' bonus cap Oct 17th 2013, 09:05 Share this Email Print Reprints Thu Oct 17, 2013 5:05am EDT By Huw Jones LONDON Oct 17 (Reuters) - Capping bankers' bonuses will ensure lenders manage risks properly and Britain's legal challenge was unfounded, the European Union's financial services chief said on Thursday. Britain is challenging the cap in the European Court of Justice, arguing that limiting a bonus to no more than fixed pay from 2014 - or twice that amount with shareholder approval - will make banks riskier by pushing up fixed pay. EU financial services commissioner Michel Barnier told the British Bankers' Association annual conference in London, where most of the bankers hit by the cap are based, that he regretted Britain had gone to the top EU court. "I remain confident that the measures are balanced and reasonable, in the interests of financial stability. And that our legal basis is the right one," Barnier said. Many European banks had to be shored up by taxpayers during the 2007-09 financial crisis, triggering public anger that bonuses were still being paid in some cases. Top lenders across the EU face a third stress test and accompanying balance sheet assessment next year, raising concerns that more capital holes will emerge. Barnier said "despite what some continue to say, large European banks are as well capitalised as their American counterparts." "Despite substantial improvement, more needs to be done on the quality of banking assets. We don't expect dramatic results. But of course, these exercises may throw up certain funding gaps," Barnier said. Banks with shortfalls will need to reduce their assets or tap markets, he said. "If banks are not able to raise capital in the markets - which could still be the case for a few - we will have a clear framework in place, with bail-in, and national and if necessary European backstops," Barnier said. But while countries who cannot afford to pay for the repair of weak banks will be able to apply for an international bailout, as Ireland did, direct euro zone aid for the banks affected remains unlikely in the face of German opposition. The balance sheet assessment comes ahead of handing supervision of 130 banks in the euro zone to the European Central Bank from late 2014 in a first step in a banking union in the single currency area. The banking union has raised concerns in Britain that it faces being sidelined in EU financial rulemaking but Barnier said the bonus cap was the only law Britain has been outvoted on since he took up the reins in 2009. He acknowledged the banking union raised fears in Britain. "But rest assured. We have no interest in undermining the UK, no interest in threatening London's place as the largest European financial centre," Barnier said. He will leave his post next year when a new European Commission is appointed and one of his last legislative proposals will be on cutting risk in bank. There may still be banks that are too big to save and too complex to resolve, Barnier said. "That is why we are working on a common framework on the structural reform of banks and plan to come forward with a proposal in the coming weeks," he added. The proposal will be based on a report chaired by Finnish central bank governor Erkki Liikanen which recommended ways to cut risks in banks by separating out trading. Britain is already planning such changes recommended in its own Vickers Report by requiring high street banks to ring fence their deposit taking arms with extra capital. "Here in the UK, you are in the process of implementing Vickers. We will of course take that into account," Barnier said. Link this Share this Digg this Email Reprints

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