Feb. 28, 2013

The EU is looking to implement the world’s strictest pay curb in 2014. The provisional deal would limit bonuses to no more than an employee’s annual salary, unless 65 percent of shareholders vote it up to two years.

Euronews reports, the regulations are in response to public sentiment.

“The decision was made to address public anger at bonuses being paid out to bankers at the center of the economic crisis who were bailed out by the public purse”

The regulations are meant to reduce incentive to take excessive risk. That has sparked debate between economists. An analyst on Sky News says he worries they’ll have the opposite effect.

“The impact it is likely to have is that fixed salaries will go up, that will reduce the flexibility of banks to manage their costs, which could incentivize them in the future actually to take even more risk.”

CNBC reports these possible regulations may further complicate tensions between the United Kingdom and the EU.

“London can’t opt-out it sounds like, so if this moves forward, I don’t know what kind of leverage at a time when the UK is talking generally about renegotiating its relationship with the European Union this seems like one area where the conflict really comes into focus.”

Former UK policy chairman Stuart Fraser told Bloomberg the concern is legitimate and that the regulations are not based on analysis, but on emotion against bankers.

“London won’t have flexibility of cities outside of the European Union who use the bonuses as a sort of way of reducing costs in bad times.”

In response to the deal, British Prime Minister David Cameron said the UK must protect the major international banks that are based there but have operations all over the world.

“We need to make sure that regulation put in place in Brussels is flexible enough to allow those banks to continue competing and succeeding while being located in UK.”

The BBC reports the effects of these one-of-a-kind regulations will reach far beyond London.

“Once the proposals are formally agreed it will start the biggest shake-up of the banking system since the global financial crisis.”

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