(Photo: Reuters)
(Photo: Reuters)

European Union lawmakers are thrashing out a deal to cap the amount banks will be able to pay staff in bonuses in a bid to respond to anger from investors and the public over the role played by banks in the financial crisis.

In key talks Tuesday in Brussels over the implementation of Basel III rules for bank capitalisation, representatives from EU states and the European Parliament are seeking to reach a deal where bankers' bonuses will not equate to more than their annual salaries.

The global bank capital accord Basel III is a new set of rules that banks will have to adhere to, including a rise in the amount of cash it holds on its balance sheet in order to create a buffer-zone against another financial crisis.

Other rules include the minimum requirement for banks' tier-one capital ratio, the ratio of equity capital to risk-weighted assets, to be raised from 2 percent to 4.5 percent.

Basel III was due to be phased in from January, but as IBTimes UK reported, less than half of the 27 countries subject to the new rules met a crucial liquidity deadline at the beginning of this year.

The EU needs to finalise the new law in order to legally implement Basel III.

While EU lawmakers thrash out the deal, many representatives are trying to peg bonuses to no more than a strict 1:1 bonus-to-salary ratio, which is not currently a provision not in the Basel accord. Any deal on bankers bonuses' caps would need endorsement from member states and full parliament.

On 14 February, EU member states gave Ireland the mandate to negotiate a bankers' bonus cap, while Britain failed to rally enough support to block one.

Meanwhile, some European countries have already started cracking down on bank's pay policies and bonus schemes.

German regulator Federal Financial Supervisory Authority (BaFin) launched a probe into 23 banks' pay policies at the beginning of this year in order to determine whether they had implemented the strict bonus rules that the country imposed in 2010.

In October 2010, Germany changed banks' bonus rules, demanding that pay was appropriate, transparent, and aligned to ensure sustainability.

BaFin and the Deutsche Bundesbank form the banking supervision authority that does not directly intervene in transactions conducted by banks, but sets the regulatory framework, under the legal basis of The Banking Act (Gesetz über das Kreditwesen).