No Time for Complacency: Europeans Say Banks Must Keep More Cash, Pay Bankers Less

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At two separate meetings over the weekend top finance officials discussed reforms to the global financial system that will be on the agenda for the upcoming Group of 20 meeting in Pittsburgh.

In Basel on Sunday the world's top central bankers and regulators proposed a set of stricter regulations for the oversight of financial institutions. According to the proposal, banks should be forced to set aside more capital for times of financial crisis as well as to set limits on the amount of debt they can run up.

The proposals are meant to "substantially reduce the probability and severity of economic and financial stress," according to a statement by the oversight committee of the Basel Committee on Banking Supervision, adding that it intended to release finalized recommendations by the end of the year. "The agreements reached today among 27 major countries of the world are essential as they set the new standards for banking regulation and supervision at the global level," said European Central Bank President Jean-Claude Trichet, the committee's head, in a statement.

The committee is part of the Bank for International Settlements (BIS), an international organization that "fosters cooperation among central banks and other agencies in pursuit of monetary and financial stability," according to its Web site. In essence, it is a bank for the world's central banks.

The committee also endorsed the principal that "compensation should be aligned with prudent risk-taking and long-term, sustainable performance." In doing so, it weighed in on the contentious issue of regulating banker bonuses.

Regulators Must Teach Bankers A Lesson

The issue was also touched upon in London on Saturday where the G-20 finance ministers met to discuss financial regulation and banker compensation ahead of the actual G-20 summit later this month. The group repeated its pledges to curb bonuses but it shied away from backing a French call for a cap on pay.

"Bankers don't seem to have learned a lesson so regulators will have to do it for them," Wolfgang Gerke, an honorary professor at the London-based European Business School told Reuters.

The issue will get further attention this week when top executives from some of the world's leading banks meet in Frankfurt for a conference on rebuilding trust in the global financial system. The meeting will be attended by heavyweights of the banking world, including the heads of Goldman Sachs, Morgan Stanley and Deutsche Bank.

The G-20 finance ministers will be meeting again in Pittsburgh on Sept. 24-25 to try to hammer out the banking regulations first proposed at it's April meeting in London which have been the subject of numerous international meetings since then.

In April government heads agreed in principle to introduce stricter regulations on the risks banks are allowed to take as well as to create independent ratings agencies to evaluate financial products.

'Not Time For Complacency'

Still, until now, most proposals have remained just that. "What's been very important is the very strong support that the G-20 expressed toward keeping momentum in the financial reform effort," Mario Draghi, the Bank of Italy governor who heads the board charged with implementing the G-20's financial reform agenda, said after the group's meeting Saturday. Draghi added that: "It's not time for complacency and more is in the making."

But not all are confident that much will come out of the Pittsburgh meeting. "Up until now there has been a total breakdown in international cooperation when it comes to banking regulation," Henrik Enderlein, a professor of political economy at the Berlin-based Hertie School of Governance, told the AFP news agency. Enderlein added that he believe that the United States and Great Britain would stand in the way of reform. "I have very little hope for Pittsburgh," he said.