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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Picking your battles is a central part of every effective lobbying effort. The EU’s banking lobby faces a particularly uncomfortable choice now, as it contemplates whether to go to war on the issue of the bloc’s banking bonus cap.
The cap, introduced in the aftermath of the banking crisis, has just been axed in the UK, where regulators argued that it prevented banks from adjusting pay up and down as profits ebbed and flowed, making it harder to attract talent to London.
The result is an unlevel playing field in the City, where British, American and other foreign banks can now use unlimited bonuses to lure and retain top talent, while BNP Paribas, Deutsche Bank and their EU peers must continue to cap variable pay at twice salaries.
London’s financial centre isn’t what it was before Brexit, but it’s still big enough to matter to the EU banks that employ thousands of people there. But so far, the lobbying effort has been tentative for such a hot-button issue. The heads of Deutsche Bank and Santander are among those who have suggested the EU might want to rethink its approach, but the tone of comments has been restrained.
Deutsche’s Christian Sewing told the FT’s recent Global Banking Summit that if the cap were removed elsewhere, the EU would “need to take [that] into account and consider [how] to stay competitive”.
Santander’s executive chair Ana Botín was even milder, saying she welcomed the UK’s effort and that a similar move in the EU would be a good step.
And the European Banking Federation, the lobbying body for the EU’s banks, has been notable for its silence.
Such reticence by the industry to engage on a topic so dear to the heart of thousands of their workers partly stems from the inherent difficulty of the task.
In the UK, the change was enacted by regulators, with the fair wind of a political system that had vowed to liberate the City from an EU regime that choked growth. Agreements in the EU are brokered by a complex system of trade-offs between the bloc’s parliament, its council of member state leaders, and the bureaucrats in the European Commission.
Trying to win support from all those quarters for lining the pockets of rich bankers would be a tough sell at the best of times, but it becomes even harder during a brutal cost of living crisis. Or, as one French lobbyist puts it of the tentative industry outreach: “We don’t sense any appetite in Europe to change the rules.”
Another lobbyist, who says the European debate “has moved on” from the banker vilification of the post-crisis era, admits evolution of thought has been less in some countries such as the Netherlands and Ireland. “We’re sensitive, this is not the first thing we lead on,” he says. “It’s on a list of many issues that we as an industry raise with policymakers.”
The other thing holding lobbyists back is the impending EU elections in the summer. “The timing is off,” says one senior EU lobbyist. He’s conscious that chasing such an unpopular issue could sour relations with the new Commission before it’s even under way, making it harder for banks to progress topics that are more financially meaningful and less politically toxic.
And there are plenty of those, including implementing the latest mammoth package of global banking capital rules, known as Basel IV; pressing for the long-awaited reform of Europe’s securitisation market; and taking up the cause of Europe’s stalled bank deposit guarantee scheme.
The latter proposal, first tabled by the European Commission eight years ago, is designed to ensure that the depositors of failing banks across the EU are guaranteed equal treatment. It is part of the plan for a European Banking Union, a market where banks could operate freely across the EU and embark on profit-boosting, cross-border mergers. The prizes for these issues run to tens and tens of billions, including potential fees and capital benefits from a revived securitisation market.
Other topics crowding lobbyists’ to-do lists include developing Europe’s payment system and protesting new ESG disclosures designed to hold firms accountable for the impact of their activities on rights and the environment.
Together, it all adds up to a lot of reasons to want to start off on the right foot with the next Commission, rather than spoiling relations with a doomed campaign over a politically toxic issue.
