Thaindian News

By Venkata Vemuri
London, July 8 (IANS) It is payback time for British banks whose heavy risk-taking caused the country’s worst financial downturn two years ago. New rules, led by cash caps on bonuses, are coming into force to make them more responsible to the general public.

The European Union passed a rule Wednesday which will have bankers’ cash bonuses capped and even clawed back. The cash component of the bonuses taken upfront is now capped at 30 per cent of the total. They will get the remaining over a period of five years.

Directors of banks that received public money will also be asked to justify their bonuses under the measures approved by members of the European Parliament in Strasbourg.

Lawmakers have blamed bonuses for the excessive risk-taking that contributed to the worst financial crisis since World War II. The new measures are part of a legislation aimed at forcing banks to hold more capital against trading books.

Britain will have to turn the rule into a domestic law by next January, in time for the post-Christmas bonus bonanza.

Under Britain’s current pay regime, city bankers earning over &pound1 million pocket 40 per cent of their annual bonus straight away and only have to wait three years to receive the rest in full.

The Financial Services Authority, the financial watchdog, is also considering new proposals which will regulate the rights of banks to pinch money from savings accounts to pay off a customer’s debts without even asking the account holders.

Under a controversial rule called set-off, banks and building societies have the right to move money from an account which is in credit — such as a current or savings account — to pay off an unpaid debt.

The new proposal will force banks to first send warning notices to customers before any money is taken from them. Even then, they will first have to assess whether the customer would be left struggling to pay vital bills.

Another area under scrutiny is the excess charges of banks like high fees for unauthorised overdrafts and a loss to customers calculated as the gap between low interest rates paid to savers and sky-high rates charged on mortgages.

(Venkata Vemuri can be contacted at venkata.v@ians.in)