Sept. 25 (Bloomberg) -- Group of 20 leaders said they will crack down on risk-taking by banks and better align economic policies as they turned from crisis management to delivering a new set of rules for the world economy.

President Barack Obama and counterparts meeting in Pittsburgh crafted a plan to force banks to tie bonuses to long- term performance and raise the amount of capital they hold, said officials, citing a draft statement. They vowed to keep stimulus measures until growth takes hold and to narrow disparities in trade and savings. They also announced the G-20 will replace the G-8 as the main forum for steering the global economy.

With a recovery now underway, leaders are trying to temper the excesses that helped trigger the worst financial crisis in seven decades and the deepest recession since World War II. At the same time, richer governments acknowledge they now lack the ability to govern the world economy alone as power shifts to emerging markets such as China.

“The growth of the global economy and the success of our coordinated effort to respond to the recent crisis have increased the case for more sustained and systemic international cooperation,” the draft communique said.

The third summit of G-20 leaders in the past year ends at about 4 p.m. today with a final statement and press conferences.

Economics were eclipsed by security matters this morning as Obama, U.K. Prime Minister Gordon Brown and French President Nicolas Sarkozy lined up in front of cameras to accuse Iran of manufacturing nuclear fuel at a secret underground facility.

Public Anger

Leaders are trying to appease public anger after governments bailed out banks across the world and then watched as they quickly returned to profit and resumed setting aside billions for bonuses. The draft communiqué says leaders will tell banks to avoid “multi-year guaranteed bonuses” and allow awards to be deferred or clawed back, according to an official.

“There is no return to the bad old days,” Brown told reporters. “There is no going back to systems of bonuses that were based simply on short-term speculation and not on the long- term success of companies.”

Financial companies must also limit bonuses as a percentage of revenues when paying them would be “inconsistent with the maintenance of a sound capital base.” The G-20 stopped short of endorsing a French proposal to introduce specific caps on pay.

Buffer

After banks wrote down or lost $1.6 trillion, they will also have to increase the quality and quantity of capital they hold as a buffer against future losses, guidelines which must be implemented by the end of 2012, another official from a G-20 nation said. A leverage ratio for banks, which would manage holdings relative to total assets, will be added to the existing Basel II capital rules, which all members will adopt by 2011.

The test will be whether regulators can enforce the new rules as the rebound in growth and stock markets helps banks regain lobbying strength. If they can, the profitability and equity value of banks from Goldman Sachs Group Inc. to Barclays Plc may fall with their scope to invest and trade, say economists such as former Bank of England official Charles Goodhart.

The revamp of regulation is “for real, but there will be plenty of argument over the detail of how it’s done,” Leon Brittan, vice chairman of UBS Investment Bank and former European Union trade commissioner, told Bloomberg Television today. Brazilian Finance Minister Guido Mantega predicted “greater resistance” from banks to regulation now that the economy is rallying.

Momentum

The G-20 officials met as data suggested a recovery is in place, yet lacking momentum. Demand for U.S. durable goods, unexpectedly fell in August, while loans to European households and companies grew at the slowest pace on record. Still, confidence among U.S. consumers rose this month to the highest level since January 2008 and those in Germany were the most bullish in 16 months.

The mixed picture is leaving governments with no option but to keep up their support of banks and fiscal stimulus, which totals more than $2 trillion, even as their debt mounts. They promised to develop a plan for withdrawing the aid for when expansion is secured.

The governments also agreed to establish a “framework for strong sustainable and balanced growth” and sought the help of the International Monetary Fund as they start to regular assess each other’s attempts to meet that objective. The initiative could see China boosting domestic demand, the U.S. saving more and Europe increasing investment in a bid to even out the lopsided flows of trade and investment that contributed to the credit boom and subsequent bust.

Influence

The growing influence of emerging economies such as China and Brazil was marked by the agreement that the G-20 would supplant the G-8 as the guardian of the world economy. China and other “underrepresented” economies will also gain greater sway at the IMF through higher voting rights, officials said.

Originally established in the 1990s as a forum for finance chiefs, the G-20’s leaders met for the first time in Washington last November and then in April in London. Canada will hold the next summit in June followed by South Korea in November.

The G-20’s new-found status reflects how the recent slump was sparked by the major economies and the rebound is being powered outside their ranks. That’s a reversal from previous international crises when the G-8, whose genesis lies in the oil shock of the early 1970s, drove the recovery. The smaller group will continue to play a role in security and foreign policy issues.

Weight

“With their increasing weight in the global economy, it is natural that the emerging markets assume a greater role in coordination,” said Daniel Price, President George W. Bush’s G- 20 negotiator and now a partner at law firm Sidley Austin LLP in Washington. The challenge will be whether “with a group this large, they will establish effective mechanisms to ensure commitments are fulfilled.”

The leaders also agreed to phase out subsidies for fossil fuels in the “medium term,” without setting a deadline, according to the draft statement. They also plan to intensify their monitoring of tax havens from next month to ensure economies follow through on promises to comply with global standards.

The G-20 members account for about 85 percent of global gross domestic product. They are Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, South Korea, Mexico, Russia, Saudi Arabia, South Africa, Turkey, the U.S., the U.K. and the European Union.

To contact the reporters on this story: Simon Kennedy in Pittsburgh at skennedy4@bloomberg.net; Gonzalo Vina in Pittsburgh at gvina@bloomberg.net

Last Updated: September 25, 2009 14:09 EDT