Bank crisis partly blamed on pay

BRUSSELS – European Union nations on Tuesday partly blamed the financial crisis on the way bankers and traders are paid and called for new rules to link performance to pay.

Finance ministers said in a joint statement that ‘inappropriate incentives, short-termism and inadequate capture of risk’ had allowed banks to take on massive risks that have forced them to put aside billions of euros (dollars) in the past year to cover potential losses.
‘There are obviously systemic implications for how the remunerations are set,’ Swedish Finance Minister Anders Borg told reporters after leading economy talks between the EU’s 27 nations. ‘There is a role here for the public sector.’
The statement urges all EU governments to implement international and European recommendations on banking pay to strengthen the link between performance and pay, promote a balance between long- and short-term performance and monitor pay in the sector. They gave no details.
The European Commission is currently drafting new rules to govern banking pay in Europe but has not said exactly how it plans to regulate salaries and bonuses in a way that would curb excessive risk-taking.
Ministers also urged the IASB, the independent agency that sets accounting standards, to move swiftly to loosen rules that would allow European banks to follow American rivals and avoid reporting heavy losses on troubled assets they cannot sell.
They said they wanted to see changes in time to allow banks to use new pricing standards for assets for preparing their 2009 accounts.
‘The current valuation of certain financial assets … may overstate (risks) in downturns,’ they said. ‘Mark-to-market valuation of many categories of financial instruments should be reviewed and adjusted as appropriate.’
German and French finance ministers said Monday that action was ‘urgent’ because European financial institutions are currently on an ‘un-level playing field’ with U.S. rivals.
The International Accountancy Standards Board is warning against rash moves and seeking more time to weigh up any changes.
The U.S.-based Financial Accounting Standards bowed April to a request from U.S. Congress and set new guidelines that allow companies to price investments at the amount they would get in an ‘orderly’ sale instead of writing down impaired assets at current market rates.
– Nampa-AP