London G20 Pre-Summit Meeting Bonuses Bashed and Capital Reqs Increased

The G20 Finance Ministers met for two days in the preamble to the main G20 Summit held in Pittsburgh on the 24th and 25th September.

Three main themes emerged from the meeting:

there is considerable disunity on how to deal with bonuses;
broad consensus that capital requirements need to be increased;
and there is agreement on a regulatory framework.

Not really so much of a surprise there though the battle-lines with bonuses does seem somewhat odd on first glance.

The two camps which have emerged include the UK and US, who view bonuses as a "not-so-serious" issue (one EU representative went as far as claiming the US treats bonuses as a "non-subject" - off the record of course).  Facing them are at least 7 of the G20 nations led by Germany and France but also including Luxembourg, the Netherlands, Spain and Italy (with Sweden joining them over the weekend) and who are adamant that returning bonuses being paid by banks who received bail-out funds is "a provocation in the face of rampant rising unemployment."

Do depositors and investors stay awake at night worrying over how much bankers are paid or whether they still have an investment when they wake up next morning?

The bonus and pay issue is simple and easy to grasp - it's political and an easy-win for those looking to engender support at grass roots levels so why are bonuses proving to be such an issue?

I feel the real reason is because the UK and US are very heavily backing an increase in capitalisation requirements and France and Germany have a banking sector which is unlikely to be able to meet those new standards.

In this light, bonuses are a weak reed which are perceived to be a big stick by the ordinary punters back home for Messrs. Sarkozy and Merkel.

This brings us neatly to the consensus on the regulatory framwork which stops short of limiting bonuses but leaves the door open for regulators having a say on pay levels.

Too Big To Fail - large and complex institutions must develop "living wills" in the event they are compelled to "unwind" and break-up into smaller units;
Capitalisation ? once the crisis is past, banks will need to raise more money; and
Repackaged Loans - a portion of repackaged loans must be retained by the banks which they sell on as asset-backed loans.

"minor" point - the government stimulus packages are going to remain in situ until the economic environment achieves some semblance of normality though what that is no-one knows anymore.

From:http://www.hiphopmails.com/clickbank/finance/article-london-g20-presummit-meeting-bonuses-bashed-and-capital-reqs-increased.html

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