New Global Banking Rules Proposed on Bankers' Pay

Monday, 27 Dec 2010 10:54 AM

 

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New banking rules are being proposed by an influential global regulatory panel that would give investors a better idea of when CEOs and other high-paid executives get bonuses even when their companies are lagging.

The panel affiliated with the Bank for International Settlements in Basel said its proposal Monday would require banks to reveal whether a bonus is linked to a firm's performance and to provide other details aimed at preventing lenders from hiding irresponsible risks.

The new international rules "will allow market participants to assess the quality of a bank's compensation practices and the incentives towards risk-taking they support," said Fernando Vargas, chairman of the Basel Committee on Banking Supervision's task force on remuneration and an associate director-general at the Bank of Spain.

Vargas said his panel's proposal also would promote "greater convergence and consistency of disclosure on remuneration" by requiring lenders to publicly provide details of their risks and capitalization.

In a statement on its Web site, the committee said it is seeking public comment until Feb. 25 on its plan to boost the transparency of lenders' pay policies — part of an overall push to "support effective market discipline."

The committee includes regulators from the U.S., China and 25 other countries.

The issue of extravagant bonuses for CEOs even when their companies were suffering was a hot topic during the global financial crisis.

The panel's six-page plan would require banks to disclose more information about how pay and compensation are awarded and are related to job performance, how a company is organized and the "long-term performance measures" of the company itself.

Under the plan, banks would have to disclose the "number and total amount of guaranteed bonuses during the financial year," how a bank's pay and compensation may have been adjusted because of weak performance, and how much deferred compensation remains outstanding.

The European Union and other nations have been setting rules on bankers' pay to prevent the kind of excessive risk-taking that they fear contributed to the crisis. Earlier this month, EU regulators slapped limits onto cash payouts and banking bonuses.

Some bankers have expressed skepticism of having to go beyond what regulators already require, but the Basel committee said its latest proposal would "add greater specificity" to previous guidance on how much banks should have to disclose publicly.

It also said it recognized that the proposal may not be relevant to all banks, particularly those not big enough to have a remuneration committee.

The Swiss-based Bank for International Settlements, an intragovernmental organization of central banks, recently has been setting more stringent rules intended to boost banking and lending fitness over the long haul.

Other new rules, for example, will gradually require banks to hold greater capital buffers to absorb potential losses, which are likely to affect the credit industry over the next decade by imposing stricter discipline on credit cards, mortgages and other loans.

Requiring banks to keep more capital on hand will limit the amount of money they can lend, but it will make them better able to withstand the blow if many of those loans go sour.

Those new rules were presented to leaders of the Group of 20 rich and developing countries and then to national governments for ratification. U.S. officials including Federal Reserve chairman Ben Bernanke have issued statements of support for the Basel bank's attempts to reduce the occurrence and severity of future financial crises.

© Copyright 2014 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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