EU finance ministers back tighter rules for bankers' pay, capital requirements for securities
Associated Press
11/10/09 8:20 AM PST
BRUSSELS — European Union countries on Tuesday backed new financial oversight rules for bankers' pay and how much extra capital banks should set aside to cover high-risk investments.
The new rules, agreed by finance ministers, still need the support of the European Parliament before they could enter into force in late 2011 at the earliest. Finance ministers said they were prepared to negotiate the details of the rules with lawmakers before they are finalized.
Swedish Finance Minister Anders Borg, whose country currently holds the rotating EU presidency, said he hoped that December talks among EU nations would finally seal a deal that would set up new EU supervisors to monitor banks, insurers and markets, and to watch out for major economic risks.
"If we don't have a decision in December ... then I would say that we have not drawn the right lessons from the (financial) crisis," he told reporters.
The rules agreed Tuesday would, for the first time, give financial supervisors the right to examine and fine banks if their pay reward programs trigger high-risk behavior, when traders or executives expose a bank to long-term losses by focusing too much on their own pay packets.
They also would increase capital requirements and transparency for some assets that banks hold in their trading book and for resecuritization instruments, which ministers said "entail higher risks on account of their complexity and their sensitivity to losses."
The wide network of complex financial investments — such as collateralized debt and securities — sparked last year's financial crisis. Banks seized up lending because they were unsure about their own and others' potential losses when the underlying assets of such investments — such as U.S. subprime housing loans — slid rapidly in value.
The European Commission, which drafted the rules, said they would help "put an end to the culture of excessive risk-taking for short-term success at the expense of long-term profitability and sound risk management."
