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€500,000 bankers' bonus cap 'could increase risk' €500,000 bankers' bonus cap 'could increase risk'
(3 months later)
Banks have warned the European Union that plans to cap bonuses exceeding €500,000 (£428,000) would drive talent away and would not accurately identify risk takers. The European Banking Authority fielded questions from banks at a public hearing on how it intended to identify individuals who raised an institution's risk profile.Banks have warned the European Union that plans to cap bonuses exceeding €500,000 (£428,000) would drive talent away and would not accurately identify risk takers. The European Banking Authority fielded questions from banks at a public hearing on how it intended to identify individuals who raised an institution's risk profile.
EBA definitions of risk takers include those whose "total remuneration exceeds, in absolute terms, €500,000 per year". The EBA is expected to make recommendations to the EU after a consultation period ends on 21 August.EBA definitions of risk takers include those whose "total remuneration exceeds, in absolute terms, €500,000 per year". The EBA is expected to make recommendations to the EU after a consultation period ends on 21 August.
Attending a public hearing on the consultation paper, Steven Ward of Deutsche Bank said that talented people would be put off working in European banking. "Given that we will not have globally a level playing field, our ability internationally, particularly in the US and Asia, to attract and retain key control function staff particularly in risk management is impacted by where that threshold is set.Attending a public hearing on the consultation paper, Steven Ward of Deutsche Bank said that talented people would be put off working in European banking. "Given that we will not have globally a level playing field, our ability internationally, particularly in the US and Asia, to attract and retain key control function staff particularly in risk management is impacted by where that threshold is set.
"So I worry that we could introduce more risk into the system by not being able to retain or attract the right quality of people outside Europe.""So I worry that we could introduce more risk into the system by not being able to retain or attract the right quality of people outside Europe."
Andrew Trapnell, chairman of the Association for Financial Markets in Europe's remuneration working group, warned the proposals might lead to other unintended consequences. He said that some individuals in financial institutions might earn above the threshold without being material risk takers.Andrew Trapnell, chairman of the Association for Financial Markets in Europe's remuneration working group, warned the proposals might lead to other unintended consequences. He said that some individuals in financial institutions might earn above the threshold without being material risk takers.
"For example in some institutions there are research functions, maybe economic analysts. They may be paid significant amounts of money usually because they are followed in the market but their earnings potential is fee based for the organisation. There is no risk attached to the type of role that they do," he said."For example in some institutions there are research functions, maybe economic analysts. They may be paid significant amounts of money usually because they are followed in the market but their earnings potential is fee based for the organisation. There is no risk attached to the type of role that they do," he said.
The EBA said it was willing to have a debate about thresholds but suggested it would press ahead because "backstop" measures were required.The EBA said it was willing to have a debate about thresholds but suggested it would press ahead because "backstop" measures were required.
Jo Swyngedouw, chair of the EBA's remuneration working group, said: "You can argue and debate on the absolute level that should be taken into account. Are there exceptions? Possible. I think we will not close that door. Let's have a debate.Jo Swyngedouw, chair of the EBA's remuneration working group, said: "You can argue and debate on the absolute level that should be taken into account. Are there exceptions? Possible. I think we will not close that door. Let's have a debate.
"We have to come up with an alternative and part of that alternative is backstop measures and then we can debate on … the level of threshold but I think that is the starting point.""We have to come up with an alternative and part of that alternative is backstop measures and then we can debate on … the level of threshold but I think that is the starting point."
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