Bank bonuses top G20 agenda

As world financial leaders meet to discuss encouraging signs of a rebound in the global economy, pressure mounts to put discussion of exorbitant bonuses in the financial sector atop the agenda.

In a joint opinion piece in Swedish daily Dagens Nyheter published on Friday, the finance ministers of Sweden, France, Spain, Germany, Italy, Luxembourg and the Netherlands said bonuses guaranteed for more than a year should be banned.

"Bonuses should be paid out over a number of years and should mirror the individual's and the bank's actual performance over time," the ministers wrote.

The seven European countries called excessive payouts not only "dangerous" but also "indecent, cynical and unacceptable."

Britain has supported the European push to tackle bank bonuses, but has stopped short of some of the more stringent new rules proposed.

British treasury chief Alistair Darling said bonuses were an international issue that requires international effort to address.

"Nowadays, no one large bank can simply operate in a vacuum. They operate right across the world, so this truly is an international problem," Darling told BBC radio on Friday.

After an explosion of outrage over Wall Street bonuses earlier this year, interest in the issue faded in the U.S.

Legislators demanded more information on lavish bonuses handed out at AIG even as the company was collapsing, and in March, New York Attorney General Andrew Cuomo ordered Bank of America Corp. to disclose information about bonuses given to employees at Merrill Lynch & Co. just before the bank bought the brokerage company.

But that interest has waned as the stock market has waxed to recovery.

U.S. Treasury Secretary Timothy Geithner downplayed the talks to be held Friday and Saturday as a "stock-taking meeting," on the road to the leaders' meeting in Pittsburgh later this month, "not a new-initiatives meeting."

The U.S. would prefer the group to focus on an international accord to increase banks' capital reserves.

Geithner wants to start talks on a new international capital accord that he says would put in place "a more conservative framework of constraints on leverage in the financial sector across the major globally active financial institutions."

The accord would be developed under the auspices of the Financial Stability Board, an international body that was recently expanded to include major emerging economies such as China, India and Brazil.

The Obama administration's proposal would establish stronger international standards for the capital reserves that banks are required to hold to cover potential loan losses.

Many experts believe last year's financial crisis occurred at least in part because current bank regulations do not impose strict enough requirements for the reserves a bank must hold to cover its loan losses.

The U.S. wants to reach agreement on an accord by the end of 2010, with countries agreeing to implement the plan by the end of 2012.

Turn off the taps?

Bank bonuses are not the only bone of contention among the group.

Despite the nascent signs of recovery, fears remain that curtailing government spending and monetary stimulus via low interest rates and money supply boosts too soon could result in a "double dip" recession.

"You're seeing the first signs of positive growth now in this country and countries around the world," Geithner said. "We've come a very long way but I think we have to be realistic, we've got a long way to go still."

British Prime Minister Gordon Brown, French President Nicolas Sarkozy and German Chancellor Angela Merkel issued a joint letter on Thursday urging the G20 to stick to stimulus plans, while avoiding future imbalances in the global economy such as excessive budget deficits.

German Finance Minister Peer Steinbruck recently called for the reduction of fiscal measures as soon as possible.

The London meeting will discuss ways to co-ordinate plans for an eventual winding down of the trillions of dollars of support.

"The agenda has shifted from 'will we recover?' to 'how are we recovering' and, even, 'do we need to start removing stimuli?' said CentreForum economist Giles Wilkes.

"I think a lot of the meeting will be about when should we withdraw," said Wilkes. "They want to co-ordinate it. If it is a malco-ordinated adjustment you run the risk of real dislocation."