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Wednesday, May 22, 2013

Another blow in the bank bonus debate - but there's something far more fundamental at work here

Yesterday saw the opening salvo of what is sure to become a heated debate over the new ‘technical standards’ for the EU’s banker bonus rules.

Why is this so important? Well, these rules will essentially determine how far reaching the EU's already controversial bankers' bonus cap will be. But this decision also encapsulates a range of other issues that will have a defining impact in the way Europe is governed in future - and whether there's a future for the UK in there somewhere.

With that in mind, the first draft produced yesterday to launch a period of public consultation on the standards would have been particularly worrying. The key points are:
Standard quantitative criteria: related to the level of variable or total gross remuneration in absolute or in relative terms. In this respect, staff should be identified as material risk takers if:
 (i) their total remuneration exceeds, in absolute terms,  €500,000 per year, or
 (ii) they are included in the 0.3 % of staff with the highest remuneration in the institution, or
 (iii) their remuneration bracket is equal or greater than the lowest total remuneration of senior management and other risk takers, or
 (iv) their variable remuneration exceeds €75,000 and 75% of the fixed component of remuneration.
As the numerous press reports today have highlighted, these are far more wide ranging than many expected and are likely to further raise concerns that these rules will have a substantial negative impact on the City of London (and therefore the UK economy). (For background on these concerns see here and here). There are several different things going on here:
Are the EU agencies already exceeding their mandate? As we flagged up at the time of their creation, there's a substantial risk of mission creep under the EU's three supervisory agencies - EBA, ESMA, EIOPA - due to the fluid nature of these bodies. Remember, under the ECJ court case which allowed these agencies to be established under the EU single market (via QMV and co-decision), they should be blocked from having any type of decision-making powers. But EBA's standards on remuneration comes worryingly close to legislation.
Politicisation of ‘technical standards’: Related to this, and as we also flagged up at the time, technical standards have a worrying tendency to become politicised - which clearly is the case here. This type of stuff should be decided through political negotiations and defined within the regulation. Any necessary technical background and info should be provided for and incorporated, even is this means delaying the legislation slightly.

Need for non-eurozone safeguards ASAP: Though this isn't strictly a eurozone vs non-eurozone issue, it does illustrate just how vulnerable the UK and other outs could be to eurozone caucusing in banking / financial rule-making. This is also exactly why the UK and other non-eurozone countries need to ensure that the agreement in principle for double majority at the European Banking Authority - that Open Europe first floated - are held up and pushed through.
Trade-off between "single rulebook" and control: The UK says it likes the EBA since it contributes to a single rulebook for the single market, and can, for example, contribute to stamping out protectionist implementation of banking rules in Europe. This is all true. However, it does, of course, assume that the UK itself is writing the single rulebook, which may or may not be the case.
Democratic accountability: As the Times noted today, with central banks such as the Bank of England (BoE) and the ECB taking over financial supervision they must become more transparent and accountable. In this case it is unclear what role the BoE played in drafting the rules or whether they raised the concerns pushed by the government and firms in the UK.
What next?

Again, this is only a first draft. The public consultation is open until August, after which the EBA will review the evidence and provide a new draft - so a lot of the issues we highlight below should be considered with this in mind. There will then be a vote in the EBA with the final standards needing to be submitted to the Commission (which will approve or reject them) in March. One final interesting point here is that any vote in the EBA could come close to coinciding with the introduction of any double majority rules, although there are a lot of hurdles to overcome before then.

Expect a summer of furious lobbying and behind the scenes discussions as the UK and others make a final push to water down these proposals.


Jesper said...

If EU gets to regulate how bankers are paid then a precedent will have been made: EU can from then on regulate salaries. Who believes they'll stop with bankers?

I suppose there might a second reason for this proposal: Wasting time. People who could be working on reforming the EU will instead waste time on this nonsense.

Red-card it and focus on some real issues.

Jesper said...

Or, come to think about it, wouldn't it be good if the resources allocated to this less than thought through proposal was instead allocated to getting EU to pass an audit?

Rik said...

At the end of the day a clear example of (some of) the legislation that has to be repatriated as far as the UK goes.

Red tape, bad for an important sector of the UK economy (international banking). It simply ticks all the (important) boxes.

Rollo said...

When are we going to get the power to regulate Kommissars' pay? About 500 EU staff are paid more than our prime minister.
The difference is that banks are essential to our economy; getting rid of the Kommissariat is equally essential.

Anonymous said...

This is just a one-way street that damages the UK's interests - YET AGAIN. What will the EU leave for my children at this rate?

When are our politicians going to learn that renegotiation is not going to work?

What little respect I had for the EU is rapidly turning into hate.

Rik said...

The Dutch are on it and they are 'religious' on their 'Balkenende norm'.

A weird Dutch idea that says that no publicly paid person should earn more than the Dutch PM. Totally counterproductive seen the number of people involved and seen the total amounts at stake (minor rounding off number in that respect). That is however for realistic people.

For the Dutch they have become fanatics about it. The Taliban are mild, compromise friendly folks on religion compared to the Dutch on their 'Balkenende norm'. Not many things go were even indirectly public paid wages are involved or it will come up. They will keep pushing for it as their parliament is simply 'Pavloved' to it in all matters.
So they will keep it on the agenda and probably more than Cameron does. Their FM simply has no choice as it is basically always an issues when civil servant or other publicly paid wages come around and their populist always bring it up, when the EU is concerned, in parliament.