G20: Fat cats brought down to Earth with a bump
The declaration shows how little political influence is now wielded by Wall Street and the City of London
Fears that the G20 might shy away from taking on the big beasts of global finance should be assuaged by the detailed reform measures published today.
In one fell swoop, hedge funds, investment bankers and derivative traders are all now subject to a range and depth of international regulation which would have been unthinkable only a few months ago.
Some of the measures have already been proposed by national regulators. Britain's Financial Services Authority, for example, has also suggested linking bank bonuses to how much money they can lend. But the key difference is that this sort of rule will apply wherever these light-footed global institutions choose to roam. No longer can bankers in London or New York warn that their best brains will leave to do business elsewhere. Even the island tax havens are now under the global regulatory umbrella.
Potentially, the G20 declaration also goes much further than national governments have thus far dared. While the FSA left it to banks to police their own pay arrangements, the G20 has explicitly ruled out short-term bonuses. Given that the crisis has shown how big deals can take years to unravel, it ought to change the culture of annual bank bonuses substantially.
Whether it does or not depends on how proactive the new global regulator – the Financial Stability Board – will chose to get. Whatever happens, it should be busy. Another surprise is the level of regulation now forced upon the fiercely-independent hedge fund community. The "hedgies" of Mayfair and Manhattan will all have to disclose how much they have borrowed – a major blow to those who use leverage to juice their performance.
Accountants will also have to grapple with the end of the so-called "mark-to-market" approach. In future, long-term assets can be treated as more valuable than short-term market prices might suggest. But banks and companies must also apply a haircut to any assets deemed "illiquid" – or difficult to shift in a hurry.
For some it will never be enough. There are also worrying gaps in the detail such as how G20 governments plan to deal with toxic bank assets.
But taken as a whole, the declaration shows how little political influence is now wielded by the once powerful vested interests of Wall Street and the City of London. Instead, Sarkozy and Merkel's insistence on linking this to the rest of the G20 reforms means the masters of the universe have been brought down to Earth with a bump.
