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European Union officials have struck a provisional deal on new financial rules,
including capping bank bonuses.
Under the agreement, bonuses will be capped at a year's salary, but can rise to
two year's pay if there is explicit approval from shareholders.
The UK, which hosts Europe's biggest financial services centre, was opposed to
any caps on bank bonuses.
Prime Minister David Cameron said the EU should concentrate on tightening up
banks in other ways.
"We are absolutely clear that we must be able to implement the Vickers plan in
the UK, which in some ways is tougher than regulations that are being put in
place in other European countries.
"We want to have this proper ring fence between retail banks and investment
banks and the rules must allow that to happen."
'Restrict growth'
The Vickers plan, based on the Independent Commission on Banking report led by
Sir John Vickers, is designed to keep saver and business deposits from being
compromised by the more speculative activities typically undertaken by
investment banking operations.
London argues the EU's bonus rules would drive away talent and restrict growth
in the financial sector.
The UK had been trying to rally other governments in the 27 countries in the EU
behind its position.
Top bankers and financial traders can earn bonuses multiple times their base
salaries. But there has been public outrage over bonuses following the huge
bail-outs of banks.
The agreement was reached during eight hours of intense talks in Brussels
between members of the European parliament, the European Commission and
representatives of the bloc's 27 governments.
Core business
Othmar Karas, the European Parliament's chief negotiator, said: "For the first
time in the history of EU financial market regulation, we will cap bankers'
bonuses.
"The essence is that from 2014, European banks will have to set aside more
money to be more stable and concentrate on their core business, namely
financing the real economy, that of small and medium-sized enterprises and
jobs."
But Joe Rundle, head of trading at ETX Capital, in London, said the cap would
backfire. He told the BBC: "It will drive up fixed salaries to compensate.
Businesses that do not need to be inside the European Union will leave. And
when banks invest in future divisions, it will be outside the EU."
The deal paves the way for Basel III, an overhaul of banking rules.
The G20 group of rich nations had originally planned to bring in Basel III last
month, but that has been delayed to January 2014.
Basel III focuses on a ratio of high-quality capital - called tier 1 - which is
needed to cushion it against any future shocks. It will rise to 9% after the
rules come into effect.
Once the proposals are formally agreed it will start the biggest shake-up of
the banking system since the global financial crisis.
The lack of solid financial cushions meant that many banks were vulnerable, and
eventually required taxpayer-funded bailouts to avoid bankruptcy.