The European Parliament must agree the text with EU member states for it to become law, but it is in an unusually strong bargaining position. There is a solid cross-party consensus behind outlawing any banker bonuses that exceed fixed pay and tepid resistance from EU member states.
Critics, including bank lobbyists, say banks will circumvent the spirit of the changes by increasing fixed salaries or finding other methods of remunerating staff that avoid the specific wording of the new rules. “You don’t have to call everything a bonus,” said one lobbyist.
Tightening regulation has already driven up bankers’ base salaries, increasing the fixed costs of businesses even as they struggle with volatile markets.
City institutions had hoped that the UK Treasury and British regulators would help fend off European legislation. But bankers have been told by Treasury officials not to fight a high-profile rearguard action. While Britain is against setting strict ratios, banks have been warned that there are limits to what can be done, particularly given the public anger on pay and fears that populist anti-banker sentiment could easily be reignited.
Ministers also fear that fighting bonus curbs may encourage parliament to unpick and endanger some of the hard-fought compromises on bank capital rules agreed between member states.
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