Cap on Bank Bonuses Clears Hurdle in Europe - by Liz Alderman

As Wall Street drags its feet on reining in bonuses, the European Union is forcing its banks — by law — to show some self-restraint.

The European Parliament on Wednesday approved one of the world’s strictest crackdowns on exorbitant bank pay, going beyond some of the limits that many banks were pressed to adopt in the wake of the financial crisis. The action comes as the Federal Reserve accuses U.S. banks of not moving fast enough to change compensation practices that stoke excessive risk-taking. While American and British regulators have adopted the principles of Europe’s new measure, officials here are going a step further by legislating minimum caps for cash bonuses and other changes to compensation.

Bankers in the 27-nation bloc will be barred from taking home more than 30 percent of their bonus in cash starting next year, and risk losing some of the remainder if the bank’s performance erodes over the next three years. Banks that don’t curb the salaries of their biggest earners will have to set aside more capital to make up for the risk.

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