Group of 20 Seeks Curbs On Bonuses, But Not Caps
U.S. and Britain Resist Strict Limits

By Aoife White and Jane Wardell
Associated Press
Sunday, September 6, 2009

LONDON, Sept. 5 -- Top finance officials from rich and developing countries agreed Saturday to curb hefty bonuses for bankers, but the proposed crackdown on high payouts fell short of European demands after the United States and Britain shied away from imposing a cap.

The Group of 20 finance ministers also pledged to maintain stimulus measures such as low interest rates and additional government spending to bolster the global economy, warning that the fledgling recovery that provided the backdrop to their meeting here is by no means assured.

"The financial system is showing signs of repair," U.S. Treasury Secretary Timothy F. Geithner said. "Growth is now underway. However, we still face significant challenges ahead." The G-20 joint statement issued at the end of the ministers' London meeting said that fiscal and monetary policy will stay "expansionary" for as long as needed to reduce the chances of a double-dip recession.

The International Monetary Fund has said that the global economy is beginning a sluggish recovery from its worst recession since World War II, and in July it raised its estimate for global economic growth in 2010 to 2.5 percent, from an April projection of 1.9 percent.

But the IMF also downgraded its forecast for this year, saying the global economy would shrink by 1.4 percent instead of 1.3 percent.

The Group of 20 also pushed ahead with plans to reform the financial system, including taking tougher action against tax havens and giving developing countries a greater say in global governance.

French Finance Minister Christine Lagarde said such reforms would ensure that "things will not go back to business as usual . . . that there are no dark areas anymore to hide."

But while the gathering -- a preparatory session for the G-20 leaders' summit in Pittsburgh later this month -- reached agreement on the need for regulatory reform and ongoing measures to boost growth, it compromised on the hot topic of bankers' bonuses.

Curtailing bankers' pay and bonuses has been seen as key by some countries as the current payment culture, considered as having encouraged risky behavior, was blamed for fueling the financial crisis.

Alistair Darling, Britain's chancellor of the exchequer, or finance minister, and host of the G-20 meeting, said that there must be no more cases in which "people are being rewarded for reckless behavior." Heading into the talks in the British capital, European countries had pushed for the G-20, which represents 80 percent of the world's economic output, to enforce an official cap on individual payouts as well as collective bonus pots at financial firms.

Britain supported the general effort to rein in bonuses, but not the cap, while the United States was more intent on pushing its proposal for a global accord to force banks to hold more capital reserves.

During the talks, the G-20 agreed to give the Financial Stability Board, an international body established at the London summit of G-20 leaders in April, the task of drawing up practical proposals on which the leaders meeting in Pittsburgh on Sept. 24 and 25 could agree.

Suggested measures that countries could take included claw-back mechanisms to ensure that bonuses are linked to the long-term success of deals and could be forfeited if deals failed to deliver over a period of years.

The G-20 communique failed to address a proposal from Geithner for a new international accord to increase bank's capital reserves. Even so, he said he was encouraged by "support around the room."

Geithner also stressed the need for discussions on a strategy to withdraw government support for the global economy and pay off trillions of dollars in debt, saying a recovery strategy would not be effective "unless we can make fully credible our commitment to reverse those actions as soon as conditions permit."

British Prime Minister Gordon Brown won support for his push to take tougher action against tax havens, with the G-20 agreeing to a March 2010 deadline to start sanctions against tax havens that refuse to comply with transparency rules agreed on at the April summit.