Update November 10, 2015

Dhaka 8-23 am, 14-August, 2020

G-20 meeting to review matters about improvements in banker behaviour

Sumel Sarker

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10 November 2015, Nirapad News: The Financial Stability Board (FSB) is most likely to focus particularly on tools such as malus and clawbacks in its recommendations to the Group of Twenty (G20) industrial nations, according to a report in the international media.

Such tools, the report said, penalise bankers for bad behaviour.

The effectiveness of these mechanisms, according to the FSB, remains largely untested. More analysis is needed to assess whether tools?such as malus and clawbacks are sufficiently developed and effectively used to deter conduct risks, the report adds.

Bonus reforms may be putforward by FSB next year, after examining the case for strengthening disincentives to misconduct through compensation-related tools, the report adds.

Post crisis bonus reforms, the media report said, will face tough scrutiny from global policymakers next year to determine whether they have improved banker behaviour.

Bonuses can be deferred in the UK, for instance, for as long as a decade for the most senior staff, according to the report that mentioned that the European Union (EU) rules have capped bonuses at 100 per cent of salary — or 200 per cent with shareholder approval.

Countries that belong to the FSB have introduced rules since the crisis that clamp down on what was perceived as excessive banker pay, according to the report.

In its annual recommendations to the G20 this month, the FSB will focus on matters relating to just how much banks will have to hold in special instruments that convert bonds into equity in order to prevent taxpayer bailouts, the report indicated.

The FSB is chaired by Mark Carney, the governor of the Bank of England (BoE).

Traditionally, the FSB has focused on the financial soundness of banks. Its current work on bonuses comes amid wider concerns by policymakers and regulators that misconduct — and the multibillion-dollar fines and related litigation costs that banks must provide for — are becoming a so-called systemic issue, according to the report.

The BoE has previously estimated that the $150m of fines levied on banks over the past five years translates into more than $3.0tn of reduced lending capacity, the report said indicating how such problematic issues can weigh on banks’ lending operations.

Earlier this month, the European Banking Authority (EBA) stated that it would include misconduct risk within the scope of next year’s stress tests.

The FSB’s work on an international level is aimed at complementing reforms, having been put in place in the UK to improve behaviour in the fixed income, currencies and commodities markets following the benchmark-rigging scandals of London inter-bank offered rate (Libor) and foreign exchange.

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