Sweden proposes tougher cap on bankers' bonuses

STOCKHOLM Fri May 16, 2014 9:40am EDT

STOCKHOLM May 16 (Reuters) - Sweden's government is proposing a cap on bankers' pay bonuses at 100 percent of annual salary in an effort to curb short-term risk-taking, it said on Friday, sparking a debate over whether the country could lose talent to other financial centres.

Under CRDIV, the European Union's new capital directive which came into effect at the start of the year, banks must limit bonuses to 100 percent of fixed pay but can ask shareholders if they can raise the ceiling to 200 percent.

Sweden has proposed to parliament that from the start of August it bans such exemptions. If approved, Sweden would be a rare exception in Europe, where most banks have sought shareholder approvals for a 200 percent ceiling.

However, the Dutch government has proposed capping banks' bonuses there at no more than 20 percent, from 2015.

"Sweden belongs to the countries most critical of bonuses in the financial sector," Financial Markets Minister Peter Norman told Reuters. "The argument is pretty well known - it stimulates unsound activities and short-term risk-taking which are not in line with shareholder or society's goals in this line of business."

Swedish business daily Dagens Industri said earlier on Friday that the government's proposal could potentially hurt the competitiveness of the sector, leading to the loss of key staff to higher-paying countries.

The Swedish Bankers' Association did not have any comments on the proposal, saying the government's final position was unknown.

Nordea, the region's biggest bank, said it was watching developments closely.

"As we have said earlier, our policy is to have competitive remuneration, but not market leading," a Nordea spokesman said.

Sweden is home to one of Europe's toughest regulators and has forced banks to maintain high capital levels to curb risks in a financial sector which is four times the size of the economy. (Reporting by Johan Sennero and Mia Shanley, additional reporting by Steve Slater in London; Editing by Alistair Scrutton and Greg Mahlich)

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