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To achieve better results give larger bonuses. Great bonuses motivate taking greater risks. By taking greater risks to achieve better results. To achieve better results give larger bonuses ...
Each of these steps separately is logical. In its entirety, they create a vicious circle which over time becomes a vicious and. Increasingly vicious. Moreover, according to many experts, this is one of the main reasons for the current crisis is at the heart of another vicious circle. Taking risks creating more problems for banks. The problems of banks led by rescue plans with taxpayer's money. Rescue plans remain a sense of impunity and lead to taking more risks. Taking ... and know their way.
Under the pressure of public anger at everything that happened in the financial sector worldwide to consider measures by which to destroy the vicious circles. This is happening at European level with changes in the CRD (Capital Requirements Directive III - CRD3). A more stringent rules from Brussels will soon likely to affect and bankers in Sofia. Conditions for receiving bonuses of them will be recorded in the Credit Institutions Act and special regulations of the BNB. Law changes are ready, and the ordinance to be prepared, said a source from the high level of anonymity. The new requirements should take effect from early 2011 in the ordinance that the BNB will prepare will include specific details of the directive, which is still at the stage of discussion in European institutions. In the Committee on Economic and Monetary Affairs of the European Parliament deputies adopted the basic requirements for the remuneration policy. It is their coordination between the Commission, the European Council and Parliament. In July will be voted by Parliament.
Between recommendation and obligation
We have sent instructions to the Bulgarian National Bank on banks for implementation of the guiding principles of the remuneration policy. They are recommendatory in nature, since the new rules have not yet adopted the directive, the central bank explained. These are instructions for linking the remuneration of bankers with the risks and lasting results for a medium period of time. They were prepared by the Committee of European Banking Supervisors (Committee of European Banking Supervisors - CEBS, which is a member of and BNB) are adopted April 20, 2009 and apply to all EU countries. Last year, National Bank has made a recommendation to the banks begin to reset their remuneration policies to meet the requirements of the Directive when it comes into force, designated by the governor. Apply, while respecting the principle of proportionality (the size of each bank). According to the guidelines of the Committee determines the remuneration policy and requires maintenance of an appropriate proportion between the basic and further reward explained more of the central bank, did not specify what is meant by "appropriate proportion". Changes in the Directive to provide the bonuses are at most 50% of total wages (see box).
Local bankers explained that the current guidance relates specifically to the floating part of the remuneration. Te has already been implemented in some banks, part of large European groups. The scheme is in receipt of deferred bonus payment linking him with a longer period - this year as part of receiving the bonus and the remainder in the next two years, provided that the targets. The idea is to no longer be exercised so shortsighted as until recently, and have longer-term vision, the bankers explained.
Representatives of the state sector that is big bonus as one reason for the credit boom in the 2004-2008 course, bonuses are comparable to their dimensions in major European countries.
Between bonuses and risk
In an official release of the Committee on Economic and Monetary Affairs of the European Parliament of 15 June 2010 said that new rules put an end to the culture of risk-taking by bankers. According to them, the directors of banks that received public assistance will not receive bonuses while those institutions do not return the funds received as support, bankers' bonuses should not exceed 50% of total salary and bonus payments to themselves will be postponed until they are achieved deliverables, and not only be based on estimates. Vote on these rules by the European Parliament is going to happen next month.
The new rules are constructed so as to ensure stable and fair remuneration system that encourages long-term stability rather than taking excessive risk, the report says. It is receiving huge bonuses in Europe and the USA is considered as the main factor that motivated bankers to achieve better results by taking increasingly larger and larger risks. Changes to the directive intended to put an end to unhealthy policy bonuses to increase transparency and capital requirements in areas where speculative activities are distributed in writing to the Commission.
Between Prohibition and its circumvention
According to the industry in our country "is not very clear how to articulate new rules on fees. The motive is that when a regulation will always find a way to circumvent her as the manager of a subsidiary bank here or in Romania or Poland could go to the headquarters of the parent bank and thus to obtain the bonus. The local governor, you can not trace it, bankers indicated. Local banks usually do part of the economic groups and serve the business interests of its principal shareholders. Thus bonus may be received from other companies - for consulting, participation in boards, etc.
The new rules will have to pay more effect on the banks of the largest markets, ie. market-maker, who traded the capital markets speculate take big risks, get big bonuses. In our country there is no such type of banking market is not of such scale and developed traditional banks commercial banking, indicating the sector. Therefore, before proceeding to the purely mechanical constraints of dubious effect, should be carefully consider. And now there are very strict requirements how much risk banks can take the money of their clients, but any new restriction usually figure out how to be circumvented. The only counter to this is transparency. A crucial problem is that banks take a big risk and big bonuses handed out and no one knows exactly how big they are. Maybe you should consider regulations that is in the direction of full disclosure both underwriting and managers' bonuses. Thus, the central bank will be able to monitor and prevent excessive risk assessment but who to entrust their money to remain customers. Surely many people will choose a bank that does not distribute large bonuses, but will remain a business and those who pay generously for experts who know how to take justifiable risks and win. Question of the market.