BARACK OBAMA TO OVERHAUL BANK PAY
US PRESIDENT Barack Obama yesterday opened talks with regulators and advisers over a revolutionary overhaul of the pay regimes at financial services companies.
In a move that signals a new era for Wall Street, Obama is expected to implement measures to force firms to align pay with long-term performance, even if those firms have not received government aid.
Government officials have a number of weapons in their armoury, including using the regulatory powers of the Federal Reserve and the Securities and Exchange Commission (SEC) and introducing legislation.
One option on the table is to erect a pay structure which rewards traders for the quality of the business they do, rather than quantity, reports from the US said.
The government is also thought to be considering publishing “best practice” guidelines to advise firms on how to structure pay.In the UK, City veterans warned that a regulatory backlash should not go too far and should be coordinated globally to avoid discrepancies.
Angela Knight, the chief executive of the British Bankers’ Association, said it was important that regulation was looked at globally as well as within national borders.
“The key is that international standards are adopted by all major countries. Global decisions have to be implemented globally,” she said.
“We have to bite the bullet and get a sensible structure in place which doesn’t make people leave the industry but makes it clear that long term performance is what gets rewarded.”
British banks have already signed up in principle to the Financial Services Authority’s draft code on remuneration practices, which aims to make remuneration policy consistent with strict risk management.
But George Magnus, senior economist at UBS, warned that it was dangerous to expect politicians to come up with solutions for the financial sector.
“High wages is a problem because it sticks in the throat – but it’s no different from MPs taking tax money to pay their own way. It’s not something that can be regulated,” he said.
A spokesman for the Association of British Insurers (ABI) said the organisation welcomed measures such as clawback on bonuses, but sounded a note of caution over attacking bankers’ pay.
“Banks need to offer bonuses, or lose out to private equity funds where people can make more money,” he said.
The UK Treasury committee will publish its report on reforming City pay tomorrow, with many in the City in no mood to be told how to reform their pay structures by MPs deeply embroiled in the expenses scandal.
Meanwhile, it also emerged yesterday that the Obama administration is planning a reform of the derivatives markets.
Proposals to be set out by Treasury Secretary Timothy Geithner will call for an electronic system to monitor buying and selling in the market.
Firms trading in derivatives will need enough capital in case they default and will face tough reporting requirements.
The Treasury has said that “all over-the-counter derivatives dealers and all other firms whose activities in those markets create large exposures to counterparties should be subject to a robust regime of prudential supervision and regulation”.