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10 December 2010
Last updated at 06:07 ET
European regulators are set to reveal tough new restrictions on the bonuses that banks can pay their staff.
The limits are expected to be finalised today by the Committee of European Banking Supervisors (CEBS), although an announcement may not come until Monday.
The rules are likely to be much tougher than those agreed by the G20 countries, raising fears that bankers may emigrate to more lightly regulated countries.
The bonus limits are expected to apply to the global staff of European banks.
However, non-European banks will probably only face restrictions on what they pay staff working for subsidiaries based in the European Economic Area.
Relocation threat The rules may create an added incentive for bankers to relocate to Asian cities such as Singapore that have looser bonus rules, as well as lower tax rates and access to Asia's booming economies.
Moreover, according to the BBC's business editor, Robert Peston, British banks HSBC and Standard Chartered have voiced concerns that they may lose Asian staff to non-European competitors if the UK's Financial Services Authority applies the bonus rules to their global staff - including those in Asia - as expected.
And although they have made no such threat, the rules may encourage the two banks to move their corporate headquarters to Asia in order to avoid having to apply the rules outside Europe.
It is unclear whether the rules will apply to Switzerland, a major international banking centre that is not part of the European Economic Area, but that implements most European regulations under a set of bilateral treaties with Brussels.
The CEBS has already published a draft set of guidelines, which recommended making banks:
Stressed out Meanwhile the Committee is also preparing a new and much more rigorous round of stress tests for Europe's banks.
They follow the near-collapse of the Irish Republic's banks, despite the fact that they passed a previous round of stress tests held over the summer.
The new tests will be used to determine how much additional capital banks must take on to absorb potential losses on their investments.
Several international figures, including former UK Prime Minister Gordon Brown, have called on European leaders to massively recapitalise their banks in order to avoid the risk that the European sovereign debt crisis could trigger a banking collapse.
The original stress tests were heavily criticised for failing to consider the possibility that a European government may default on its debts.
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The limits are expected to be finalised today by the Committee of European Banking Supervisors (CEBS), although an announcement may not come until Monday.
The rules are likely to be much tougher than those agreed by the G20 countries, raising fears that bankers may emigrate to more lightly regulated countries.
The bonus limits are expected to apply to the global staff of European banks.
However, non-European banks will probably only face restrictions on what they pay staff working for subsidiaries based in the European Economic Area.
Relocation threat The rules may create an added incentive for bankers to relocate to Asian cities such as Singapore that have looser bonus rules, as well as lower tax rates and access to Asia's booming economies.
Moreover, according to the BBC's business editor, Robert Peston, British banks HSBC and Standard Chartered have voiced concerns that they may lose Asian staff to non-European competitors if the UK's Financial Services Authority applies the bonus rules to their global staff - including those in Asia - as expected.
And although they have made no such threat, the rules may encourage the two banks to move their corporate headquarters to Asia in order to avoid having to apply the rules outside Europe.
It is unclear whether the rules will apply to Switzerland, a major international banking centre that is not part of the European Economic Area, but that implements most European regulations under a set of bilateral treaties with Brussels.
The CEBS has already published a draft set of guidelines, which recommended making banks:
- appoint an independent remuneration committee
- defer 40-60% of bonuses for three to five years, and pay 50% of bonuses in shares (rather than cash)
- set a maximum bonus level as a percentage of an individual's basic pay
- exclude any "award for failure" from severance pay packages
- publish pay details for "senior management and risk takers"
Stressed out Meanwhile the Committee is also preparing a new and much more rigorous round of stress tests for Europe's banks.
They follow the near-collapse of the Irish Republic's banks, despite the fact that they passed a previous round of stress tests held over the summer.
The new tests will be used to determine how much additional capital banks must take on to absorb potential losses on their investments.
Several international figures, including former UK Prime Minister Gordon Brown, have called on European leaders to massively recapitalise their banks in order to avoid the risk that the European sovereign debt crisis could trigger a banking collapse.
The original stress tests were heavily criticised for failing to consider the possibility that a European government may default on its debts.
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