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September 6, 2009

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G20 battle over new lending, pay rules

G20 finance leaders struggled in London yesterday to pin down specific measures to tighten bank pay and lending rules to prevent a repeat of the financial chaos that triggered the worst global recession in decades.

The economy looked brighter than it had in April when Group of 20 finance ministers and central bankers last met, shifting the focus from crisis fighting to figuring out how to establish a safer financial system.

On the public stage, the message was one of solidarity as policy makers agreed they must spend the US$5 trillion committed to economic stimulus to secure the recovery, and delay unwinding emergency measures until economies are sturdy enough to stand on their own.

But behind the scenes, some G20 sources expressed frustration that there was not more progress made in curbing excessive pay packages for bankers -- particularly those employed by firms that have received billions of dollars in government support.

"It is offensive to the public whose taxpayers' money in different ways has helped (keep) many banks from collapsing and is now underpinning their recovery," British Prime Minister Gordon Brown said at the start of yesterday's meetings.

Finance leaders broadly agreed that banks ought to hold more capital as a cushion against the sort of catastrophic losses that led to bank failures and bailouts. It was unclear whether any specific rules would be agreed at the meeting.

A draft communique made no mention of the capital rules. It did discuss the matter of bankers' compensation, and said that the leaders planned to ask the Financial Stability Board to examine how to cap bankers' pay.

That was seen as a compromise between countries including France and Germany that had pushed hard for pay limits and Britain, the United States and Canada which were opposed to caps.

The draft statement showed agreement that emerging nations like India and China should have a greater say in the running of the International Monetary Fund and World Bank.


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