G20 finance leaders struggled on Saturday 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 policymakers agreed they must spend the $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 Saturday'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 this gathering.
One source told Reuters the G20 supported a U.S. proposal requiring banks to hold more and better quality capital. The idea is to provide greater protection against the sort of catastrophic losses that caused bank failures and bailouts of the past two years.
Banks will have tighter constraints on the high quality of core Tier One capital, the source said. This means banks will have to hold more capital and higher capital to act as a buffer.
A draft communique seen by Reuters 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.
Another area where the G20 appeared to make some progress was on a provision that would force bankers to give back bonuses if they were based on performance that later proved to be bad.
CHANGING WORLD ORDER
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 but did not offer up any formula of how this should be achieved.
It said only that their voice in global economic policymaking would grow significantly and that it expected substantial progress to be made on the issue at a summit of world leaders in Pittsburgh later this month.
The BRIC group of leading emerging powers -- India, China, Russia and Brazil -- had laid out Friday concrete targets for how much movement they wanted in IMF and World Bank quotas.
While G20 countries agree that banks need more money set aside in reserves to cushion against losses, how much is needed and how that is calculated appears to be in dispute.
Washington's proposal has raised concerns that the United States is pulling back from the G20's April pledge to tackle the issue within the existing framework, known as Basel II.
However, a Treasury official said the United States remained committed to implementing Basel II rules.
(Writing by Emily Kaiser; editing by Mike Dolan and Keith Weir)