MEPs and EU governments have provisionally agreed rules to cap bankers’ bonuses at a maximum of one year’s salary. The cap was pushed for by Austria’s Othmar Karas as part of a wider banking regulation package. The centre-right MEP told euronews that “people cannot understand on one had that we had a ratio of one to 13, one to 20 on bonuses, yet on the other hand that our taxpayers have to pay when a bank has problems.” The industry argues a bonus cap will drive so-called talent abroad, to other financial centres such as Singapore or Hong Kong. But Sony Kapoor, the managing director of the Re-Define think tank, downplayed any talk of a ‘brain drain’. He said other financial centres were welcome to “some of the worst behaviours in terms of bending or breaking of rules of the risk taking.” “To the extent that this moves outside the European Union, if Singapore wants to take them on we should be happy. Thank goodness,” he told euronews. Guido Ravoet, the chief executive of the European Banking Federation, said that the bonus issue was just a small part of making banks stable and safer. The industry has warned that a bonus cap will drive up basic salaries as a result. An increase in fixed costs means lower profits, which in turn could lead to less lending. “I think you cannot have it all. If you go too far in enhancing financial stability then the cost will be to the real economy. Because indeed the lending capacity of the banks will be reduced,” Ravoet said. Bonuses, a variable cost, are easier to slash in a downturn when profitability has taken a hit.
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