Recession gives G20 a lot to talk about

Stephen Beard Sep 21, 2009

Recession gives G20 a lot to talk about

Stephen Beard Sep 21, 2009


Bob Moon: An important part of that emerging debate on compensation is going to be playing out this week as leaders of the world’s top economies gather in Pittsburgh. The G-20 summit takes place this Thursday and Friday. Beyond the compensation issue, the heads of state in attendance aim to get a handle on the global economy to figure out how to unwind from the worst global recession any of them have ever seen, and how to prevent it from happening again.

Our European correspondent Stephen Beard joins us from London to talk about the outlook from “over there.” Hi, Stephen.


Moon: So we just heard from Amy about how the U.S. might tackle this issue of executive compensation. I know some of the leaders on your side of the Atlantic have some very strict ideas on how to deal with big bonuses. What do they want?

BEARD: The French in particular have been vociferous in calling for tight controls on bankers’ bonuses. For example, a stated limit on the size of the bonus pool available to each institution with most of the bonuses deferred for three years, and traders who lose money to be stripped of their rewards. The Dutch, too, have been pretty strict. In fact, they’ve already adopted a plan limiting bankers’ bonuses to no more than 100 percent of a banker’s salary.

Moon: Well, over here though it doesn’t seem the U.S. is prepared to go that far. What about the U.K.?

BEARD: The U.K.’s actually moved a bit closer to the continental European position on bonuses. It’s now signed up to one element of the French plan — that bonuses should be clawed back if bank profits fall. But like the U.S., the Brits just don’t want to get into the business of specifically laying down caps on bonuses. They feel that might drive some banks away from London to other, newer financial centers. However, it does look as if we are reaching some sort of common ground, a kind of halfway house between the U.S. and the European position.

Moon: There is also this issue of capitalization of the banks. Our Treasury Secretary Timothy Geithner has said the banks need to have more money on hand in case of an emergency, a reserve if you will. What is your understanding of that?

BEARD: There’s been some nervousness about this in Germany, where it’s felt some of the German banks haven’t fully fessed up to their losses and might be rather less well-capitalized than they seem. But I think across Europe there is broad agreement that the rules relating to capital and liquidity ratios need to change. We’re talking here about the amount of capital a bank should hold, and the amount of cash or liquid assets they should hold in relation to the amount it can lend. These are going to moving higher undoubtedly. And banks therefore seemed destined to become less profitable in future because they’ll be more tightly controlled in terms of their levels of lending and, therefore, it’s hoped, less prone to risky lending.

Moon: Well, that does seem to be the focus here in the U.S., this issue of reserves on hand. But how quickly might that happen? Is there going to be some sort of formal agreement that’s going to impose that right away. What do you think?

BEARD: Well, in a sense the process is already underway. The Bank for International Settlements in Basel, Switzerland, has already got a program in place to increase these ratios. But I’ve heard it suggested that major bank capital reforms are not going to be implemented in full until the end of next year at the earliest, for fear that a big squeeze on the banks could further damage their ability to extend credit and that would nip the global recovery in the bud.

Moon: We have to treat the banks gingerly at least until they are back in business, huh?

BEARD: We certainly do.

Moon: Stephen Beard our European correspondent joining us from London. Thank you very much.


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