While the G-20 agreement to move forward with a coordinated approach to bank capital rules and employee incentive payments is progress, it is important to recognize that what took place was effectively an apple pie and motherhood statement. The one stake in the ground was the commitment to make Tier 1 Capital a key metric.
However, the devil lies in the details of arrangements like these, and we are a long long way from having them.
From the Wall Street Journal:
Finance officials from the Group of 20 largest economies agreed Saturday to a global framework for bank capital rules under which banks will face higher capital requirements.
The framework will include leverage limits once the global economy moves out of recession, as well as a stricter definition of Tier 1 capital that will force banks to hold higher quality capital to cushion themselves against possible losses.
The framework represents a victory for U.S. Treasury Secretary Timothy Geithner, who earlier this week called for more stringent capital rules for all large banks.
In another compromise, finance ministers and central bank heads also agreed on guidelines for the payment of bonuses to bankers, but those don’t include a cap on the amount that can be paid to an individual.
However, the G20 asked the Financial Stability Board — a group of international regulators — to consider whether bonus limits are needed….
The FSB was also charged with coming up with more detailed proposals on new capital rules….
The G20 nations also agreed to impose sanctions on tax havens from March 2010. Jurisdictions that don’t meet international standards for sharing tax information may be deprived of funds from international financial institutions like the International Monetary Fund and the World Bank, and they may also be deprived of aid from G20 governments.