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European Union tightened up Bank Lending Rules and Bonuses

European Parliament approved new rules on bankers’ bonuses and the amount of capital that banks must hold

Apr 17, 2013 10:55 IST
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European Parliament approved new rules on bankers’ bonuses and the amount of capital that banks must hold as a buffer by a big majority. The new rules called CRD 4 (Capital Requirements Directive) will be effective from 1 January 2014. The EU plans to cap bonuses at 100% of a banker's annual salary, or 200% if shareholders approve. The objective behind the planning is to curb the sort of high-risk lending that contributed to the financial crash in 2008. CRD 4 brings the EU into line with Basel III rules on banking standards, which set new capital requirements for banks.

Under CRD 4,
• Banks will have to provide more data about their profits and taxes, on a country-by-country basis.
• CRD4 will oblige banks to increase the portion of best-quality core capital to 4.5 percent, from the present 2 percent.
• They have to hold a minimum total capital of 8% of risk-weighted assets - that is, capital held to back the loans that they make.
• The credit crunch was a liquidity crisis, so in future, banks will have to be able to meet their liabilities for a period of at least 30 days during financial stress.

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