G20 sees new bank rules by end 2012

Group of 20 leaders will aim to implement new rules by the end of 2012 to improve the quality and amount of bank capital and discourage excessive leverage, a draft summit communique showed on Friday.

The “internationally agreed” rules, which would be drawn up to help prevent a repeat of the financial crisis, would be phased in as financial conditions improve and economic recovery is assured, the text said.

The world’s largest economies were also set to endorse measures to reform compensation practices—pay and bonuses—at big banks and financial firms, the text showed.

The statement said cooperation among the world’s largest economies would ensure regulatory reform.

“If we all act together, financial institutions will have stricter rules for risk taking, governance that aligns compensation with long-term performance, and greater transparency in their operations,” the statement said.

It said banks should hold on to a larger part of their profits to support lending where necessary.

Leaders backed ideas such as clawing back pay in the event of poor performance, paying some bonuses in stock and limiting bonuses as a percentage of revenues in cases of banks with low capital, the draft said.

“We call on banks to retain a greater proportion of current profits to build capital, where needed, to support lending,” the draft communique said.

Some banks have expressed concern that quick implementation of tighter, new rules could prevent them from lending even as governments press them to support economic recovery.

The G20 statement blamed poor regulation and oversight for contributing to the financial crisis. It said stronger capital standards and clear incentives to mitigate “excessive risk-taking practices” had to be at the core of the reform.

“Major failures of regulation and supervision, plus reckless and irresponsible risk taking by banks and other financial institutions, created dangerous financial fragilities that contributed significantly to the current crisis,” the draft said.

The leaders’ statement showed agreement on the importance of reforming pay practices at banks.

“Reforming compensation policies and practices is an essential part of our effort to increase financial stability,” it said.

Some European governments, notably France, have pushed for strict new curbs on bonuses in the financial sector. But the United States was opposed to the idea of fixed limits on bonuses.—Reuters

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