Retroactive effect. Rules on the behaviour of European bankers are beginning to take effect. At the beginning of next year, the rules defining and limiting pay will be legally in force and will be applied retroactively to bonuses paid in 2010. The directive has been approved and the Committee of European Banking Supervisors (CEBS) has published the draft application measures, which are subject to consultation procedure until 8 November (EUROPE 10233).
It does not appear that the banking community intends to oppose the principles or main contents of these texts; it would be a lost cause for them at both a legal and political level, as well as among the public, because the draft has obtained the support of all the institutions (the European Commission proposed it, Parliament debated it and reached a compromise with the Council last June - EUROPE 10171). Public opinion is evidently not particularly well disposed towards the bankers. Critical comments made by the latter do not therefore focus on the general orientation. They do, however, make a concerted effort to underline the disadvantages European banks would have with regard to US and Asian banks if the latter are not subject to the same rules. It is more clever of them to say that they are “in favour of the spirit of the EU directive”, whilst talking about the “unintentional consequences” and demanding that they are simultaneously applied to all G20 countries, in an effort to avoid unfair competition and in an effort not to put at risk “hundreds of thousands of jobs” linked to the financial services industry. According to the banks, the imbalance would be even more damaging because economic growth is mainly taking place outside Europe. Nonetheless, it is well-known that the astronomical bonuses effectively only benefit a small number of professional speculators, to the detriment of the real economy. Other arguments put forward do not hold water either, such as the idea that capping bonuses would lead banks to inflate their salaries, which would increase the banks' fixed costs and make it more difficult for them to rebuild their capital.
Aspects for clarification, urgent entry into force. Applying the directive requires clarification of certain aspects. Will the percentage of a bonus paid in cash be 30% or 50%? How can particularly high bonuses be defined for which the cash payment cannot be above 20%? Should bonuses be in proportion to basic salaries and what would the ratio of this be? A certain margin for manoeuvre could ultimately be left up to the national regulators.
The essential point is that the directive exists and will soon be applied. This aspect of cleaning up the financial world is just as important as the others which have been discussed at length: supervising hedge funds, how the derivatives markets operate, short selling, rating agencies, deposit guarantee mechanisms and of course, European economic governance, which in a few months' time, will be having its first European semester. All the reforms are necessary; supervising the behaviour of the “investment banks” is no less important or less urgent than the others.
Reintroducing separation? Last week, in Washington, in a backdrop to the G20 at a ministerial level of the IMF Assembly, a tough talking European finance minister, Giulio Tremonti, said that he was astonished by the extent to which the investment banks (those that do not take into account savings for financing the economy) were back on the scene again: “Two years ago, their bosses were nowhere to be seen. They're back: they're in the most expensive hotels, they're organising parties and receptions outside meetings”. He also said: “Speculation is back, derivatives are back to their pre-crisis level, super-bonuses are even higher”. He concluded that bailing out the big banks also implied the “speculative part of them that they were harbouring”.
We can understand that in these conditions the idea of introducing a separation of the two categories has been relaunched: on one side, the deposit banks, which receive savings and finance the economy and on the other side, the investment banks, which deal with shares and securities values. This separation was introduced in 1933 in the US by the Glass-Steagall Act, but was withdrawn in 1999. The idea of reintroducing it in the US and applying it in Europe was examined at length during the crisis, but the bankers managed to prevent this. If the development described by Mr Tremonti corresponds to the real situation, some parties will be asking for it to be taken into consideration again.
(F.R./transl.fl)