The Spanish cabinet on Friday approved a decree aimed at cracking down on the bonus mentality in the banking system, which almost brought the world economy to its knees through risky lending strategies.

The legislation incorporates a European Commission directive that seeks to reduce risks in the financial sector. The decree allows the Bank of Spain greater supervision over bankers' salaries and incentives and also aims to put a cap on a deposit war among funding-strapped Spanish lenders.

The decree was passed after Brussels last month gave Spain two months to incorporate its directive on capital requirements into national law. The EC wants to tackle "perverse pay incentives by requiring banks and investment firms to have sound remuneration policies that do not encourage or reward excessive risk-taking."