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G20: EU calls for clampdown on bankers' pay

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25th Sep 2009
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A severe clampdown on bankers’ pay should be reinforced with the threat of sanctions, warned ministers from the European Union at this week’s G20 summit.

Jose Manuel Barroso, the European Commission president said the G20 summit in Pittsburgh must ‘step up a gear’ in reforming financial markets, with zero tolerance for any return to the ‘bad old ways’.

“Europeans are horrified by banks, some reliant on taxpayers’ money, once again paying exorbitant bonuses,” he said on 24 September. “In Pittsburgh, the EU will call for coordinated action to stop this, building on measures already taken in Europe and elsewhere.”

He insisted Europe had not embarked on a ‘witch-hunt’ against bankers, saying: “More effective regulation is in the interests of any responsible financial sector and prudent financial institutions must not be at the mercy of their competitors’ recklessness.”

Fredrik Reinfeldt, the Swedish prime minister who holds the rotating chair of the European Union added: “The idea that banks should be allowed to keep the profit for themselves but send the bill for their losses to the taxpayer will not be accepted.”

The EU, spurred on by Angela Merkel of Germany and Nicolas Sarkozy of France, wants bonus payments to be linked to the size of fixed salaries, the size of the bank and the individual banker’s performance.

It also wants payment of bonuses to be deferred and even cancelled if the deals they earned them their payouts turned sour. However under pressure from the UK, the EU is only asking the G20 to ‘explore’ ways to cap bonuses as a share of a bank’s total pay bill, revenues or profits.

However, the demands for caps on bankers’ pay and Barroso’s tough language threatened to put the EU on a collision course with the United States, which is hosting the two-day summit.

The US and the UK, which are home to the world’s largest financial centres, believe that forcing banks to hold more capital in the economic good times would lower bonus payments indirectly by limiting the amount of spare cash that banks can devote to pay. However continental Europeans cynically believe that the US and the UK prefer capital requirements because their state bailouts have left American and British banks in a stronger position.

Read more from our sister site's special correspondent in Pittsburgh at FinanceWeek.co.uk.
 

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