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
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.