European Union officials struck an agreement on a financial package late on Wednesday that includes capping bankers' bonuses at a maximum of one year's basic salary.
The bonuses will only be allowed to reach twice the annual fixed salary if a large majority of a bank's shareholders agrees, according to European Parliament chief negotiator Othmar Karas.
"For the first time in the history of EU financial market regulation, we will cap bankers' bonuses," he said.
"The essence is that from 2014, European banks will have to set aside more money to be more stable and concentrate on their core business, namely financing the real economy of small and medium-sized enterprises and jobs."
Irish Republic Finance Minister Michael Noonan, who led the negotiations for the 27 EU governments, added: "This overhaul of EU banking rules will make sure that banks in the future have enough capital, both in terms of quality and quantity, to withstand shocks.
"This will ensure that taxpayers across Europe are protected in future."
The bonus cap is part of a financial reform package introducing higher capital requirements for banks, the so-called Basel III rules.
Top bankers and traders may currently earn bonuses many times their basic salary, but public outrage has grown over the huge bonuses doled out to executives of banks that received huge state bailouts.
Critics claim that bonuses encouraged bankers to take massive risks at the expense of the long-term future of their businesses, which destabilised the financial system.
But banking insiders say that the banks will simply increase basic salaries of their top earners to compensate for lower bonuses or will, as countries like Britain fear, move their operations out of the euro area.
Britain's Tory-led coalition had vehemently rejected the proposal, saying that the rules would drive away talent and hamper growth.
London tried to rally other governments behind its position but failed to win support.
Most governments said they'll accept the bonus cap to ensure the Basel III rules come into force by January 2014.
And even if London does not back the package, other governments could still force the legislation through by adopting it by qualified majority.
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