USand EU closer to bonus deal
A RADICAL plan by the Federal Reserve to regulate USbank bonuses has made a deal at this week’s G20 summit much more likely, analysts said last night. The US shift has significantly reduced the gap with the EU’s position, but other nations and national parliaments would still have to endorse any agreement.
The Fed now wants to have the power to veto any compensation structure it deems to be fuelling excessive risk-taking. The top 25 banks would be most regulated but executives and traders at thousands of other institutions would also be regulated, under early versions of a Fed proposal still being worked on.
This comes as actual bonus caps, which were heavily pushed by French president Nicolas Sarkozy, were not included in recommendations made by EUfinance officials ahead of the Pittsburgh summit. European leaders are now looking at linking bonuses to a bank’s capital level – in line with US proposals to avoid specific limits.
Favoured principles include paying a higher percentage of compensation in stock, requiring that bonuses are paid over time and could be clawed back if performance worsens and cutting out pay guarantees.
Yesterday Prime Minister Gordon Brown stressed that now is not the time “to switch off the life support” of financial incentives.