Financial Regulatory Forum

G20 to stick with stimulus, little move on bank pay

By Reuters Staff
September 5, 2009

By Glenn Somerville and Toni Vorobyova

LONDON (Reuters) – G20 finance leaders pledged on Saturday to keep economic life-support packages in place until a recovery is firmly secured, but reached no deal on putting limits on bankers’ pay.

Finance ministers and central bankers meeting in London agreed fiscal and monetary policy would stay “expansionary” until recovery from the worst financial crisis since World War II was certain, a draft of their joint statement seen by Reuters showed.

The global economic outlook is certainly a lot better since leaders last meeting on the economic crisis in April, but policymakers are worried about derailing that recovery by pulling the plug too soon.

“We will continue to implement decisively our necessary financial support measures and expansionary monetary and fiscal policies consistent with price stability and long-term fiscal sustainability until a recovery is firmly secured,” the draft said.

With politicians looking for someone to blame for the recession, the rhetoric leading up to the meeting had been directed firmly at bankers and their lavish multi-million dollar bonuses.

But the ministers could not agree on putting an actual cap on bonuses as had been advocated by some countries and leading charities.

Instead, they agreed to create a global structure for imposing tighter controls on pay at financial institutions to discourage bankers from making the kind of risky bets that started the crisis back in August 2007.

These included deferring bonus payments over time and subjecting them to “clawback” in case things went sour. The compromise was that the Financial Stability Board, a global regulatory council headed by Bank of Italy chief Mario Draghi, would study caps and the whole issue of pay further.

“Pay and bonuses cannot reward failure or encourage risk taking.” British Prime Minister Gordon Brown told the start of the meeting. “It is offensive to the public whose taxpayers’ money in different ways has helped many banks from collapsing and is now underpinning their recovery.”

CHANGING WORLD ORDER

The draft statement showed agreement that emerging nations like India and China should have a greater say in the running of the International Monetary Fund and World Bank but did not offer up any formula of how this should be achieved.

It said only that their voice in global economic policymaking would grow “significantly” and that it expected “substantial progress” to be made on the issue at a summit of world leaders in Pittsburgh later this month.

The BRIC group of leading emerging powers — India, China, Russia and Brazil — had laid out on Friday concrete targets for how much movement they wanted in IMF and World Bank quotas.

Nor was there much clarity yet on a U.S. proposal for increasing the capital that banks hold in order to prevent a rerun of the crisis that led to the collapse of some of the world’s biggest banks.

While G20 countries agree that banks need more money set aside in reserves to cushion against losses, how much is needed and how that is calculated appears to be in dispute.

Washington’s proposal has raised concerns that the United States is pulling back from the G20′s April pledge to tackle the issue within the existing framework, known as Basel II.

French finance minister Christine Lagarde said on Friday she could not see the point of scrapping that framework, saying changes already made to it had dealt with the biggest issues.

(Writing by Sumeet Desai; editing by Keith Weir and Patrick Graham)

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