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prevent a replay of the global financial crisis on Thursday as
pressure mounted for more regulation ahead of a G20 summit. The
head of Britain's Financial Services Authority said he would support
moves to raise capital requirements for banks and impose taxes on
financial transactions to cut the bloated banking sector down to
size. 'If you want to stop excessive pay in a swollen financial
sector you have to reduce the size of that sector or apply special
taxes,' Adair Turner, chairman of the FSA, told current affairs
magazine Prospect in an interview. 'Higher capital requirements
against trading activities will be our most powerful tool to
eliminate excessive activity and profits. 'And if increased
capital requirements are insufficient I am happy to consider taxes on
financial transactions,' Turner added. Excessive risk-taking by
banks and traders, resulting in massive bonuses, has been blamed for
helping spark the financial crisis that spiralled after the collapse
of US investment bank Lehman Brothers in September 2008. There
have since been multi-billion dollar government bailouts of world
banks and many economists now emphasise that prospects for any
stable economic recovery are closely linked to a pick-up for the
banking sector. Public anger about bank bonuses and the luxury
lifestyle associated with them has also risen as the fallout from the
economic crisis has become ever more painful, with unemployment
rising sharply in many economies. French President Nicolas Sarkozy
and German Chancellor Angela Merkel have now thrown their weight
behind proposals to impose stricter rules on performance-linked pay
for banks and have urged G20 partners to follow suit. Britain's
FSA earlier this month outlined new rules on bonuses for banking
executives, unveiling a new code of practice that begins in 2010.
EU Commission chief Jose Manuel Barroso on Thursday also said there
should be limits on bonuses and 'reinforced ethics' in the economy,
adding that the the European Union's executive arm would work with
the G20 to achieve this. Bonuses are set to take centre stage at a
meeting of finance ministers from the Group of 20 leading global
economies in London next week, before a G20 summit of world leaders
in September in the US city of Pittsburgh. The Basel Committee on
Banking Supervision, an influential forum based in Switzerland,
meanwhile released plans on Thursday for new bank accounting
standards ahead of the summit in a bid to prevent another crisis.
The plans are meant to ensure that banks are better prepared to deal
with financial risk and the ups and downs of economic cycles, said
the forum, made up of representatives from top industrialised and
emerging economies. In Britain, Turner criticised some activities
of London's financial sector as 'socially useless' and questioned
whether it had grown too large. He also said pay levels in the
sector could be due to 'over-simplistic financial deregulation',
describing this as the 'really fundamental question.'
