FINANCIAL SERVICES
Barroso urges ban on bonuses in weakest banks
Europe’s biggest banks should be barred from paying bonuses until they have raised their capital ratios, José Manuel Barroso said today in a speech outlining the European Commission’s strategy for resolving the eurozone crisis.
The European Parliament debate was held ahead of the emergency European Council summit in Brussels on 23 October 2011.
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President Barroso said: “To break the vicious cycle of uncertainty over sovereign debt sustainability and over growth prospects, we need comprehensive solutions now.” One of the key elements of the strategy to solve the crisis is the need for a “co-ordinated approach to strengthen the banking system”.
To applause from many MEPs, according to the BBC, Barroso said that banks who were receiving EU bailouts should stop paying out bonuses.
Key extract from speech "We must therefore urgently strengthen the banks, because in fact those two issues – the sovereign contagion and the banks are now, whether we like it or not linked. This must be coordinated through the Member States, the European Banking Authority, the ECB and the Commission. The strategy should comprise 5 key steps: It should include all potentially systemic banks identified by the European Banking Authority across all Member States. It should take account of all sovereign debt exposure in full transparency. It should involve a temporarily higher capital ratio after accounting for exposure. Banks that do not have the required capital should present and then implement plans to have it in place as swiftly as possible. And until they have done so, they should be prevented from paying out dividends and bonuses by the national supervisors. Banks should use private sources of capital first. If necessary the national government should provide support as a next step, as a last resort, drawing on a loan granted from the EFSF. Any public support should be compatible with the state aid rules. The Commission intends to extend the existing state aid framework for bank support beyond the end of 2011. Naturally, details on capital ratios and evaluation methods should be proposed by the EBA with national supervisors, who are best placed to judge on this."
Want to know more?
Read the speech online at Europa.eu, the official web site of the European Union.