Banker Pay, Bonus Curbs Hard for Banks to Implement, FSB Says

Banks are struggling to gauge whether staff are taking excessive risks that should lead to bonus curbs set out in a new wave of international rules, global regulators said.

Lenders face “practical implementation challenges” including measuring “poor behavior” that merit bonus cuts or clawbacks, the Financial Stability Board said in a report on its website today. Banks also have divergent views “over the legal enforceability of clawbacks,” the FSB said.

Regulators have sought to rein in banker pay as part of their response to the financial crisis unleashed by the collapse of Lehman Brothers Holdings Inc. The FSB rules, published in 2009, seek to deter banks from offering bonuses that encourage staff to take excessive risks. Public outrage and shareholder rebellions have also led some banks to limit payouts.

The FSB report was drawn up following a meeting in November between representatives of globally systemic banks and regulatory officials.

Banks warned of a “lack of consistency in the rules and expectations” of national regulators, according to the document.

The FSB said that the meeting also discussed moves by some banks to offer staff so-called contingent convertible bonds, or CoCos, and bail-in debt as part of their remuneration packages.

CoCo bonds are bank debt that automatically turns into ordinary shares when a bank’s capital level falls below a pre- defined threshold.

Bail-in debt can be written down or converted into equity by regulators if a bank is on the point of non-viability.

Some banks “expressed strong skepticism” about using these securities as a form of remuneration, the FSB said. “They see these instruments as too complex and difficult to explain to both staff and shareholders.”

The FSB brings together finance ministry officials, regulators and central bankers from the Group of 20 nations.

To contact the reporter on this story: Jim Brunsden in Brussels at jbrunsden@bloomberg.net

To contact the editor responsible for this story: Anthony Aarons at aaarons@bloomberg.net