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The European Parliament has approved legislation stopping banks from awarding exorbitant bonuses. It's hoped the new measures will discourage excessive short-term risk taking.
Under the new legislation, only 30 percent of a total up front bonus may be paid in cash. For large bonuses, the cash payment is capped at 20 percent. There's also a claw back mechanism that allows bonuses to be reclaimed, if performance turns out to be weaker than predicted.
The new curbing measures will apply to senior management, and is aimed especially at risk takers. Banks will also be required to hold more capital against securities which repackage other securities.
EU finance ministers are set to endorse the rules next Tuesday, before the legislation comes into effect in January 2011.