For the moment not to many bankers are worried that tougher regulation will hit their industry soon.
Nor will there be an early ending to the various stimulus packages and measures in the world’s major economies.
The weekend’s Group of 20 Finance Ministers talked a lot about bankers’ pay, bonuses and the like, but actually getting a comprehensive international agreement that every major nation will stick to, will be a test much further down the track.
The predictable concentration on excessive bank pay and risk-taking by bankers dominated the post meeting discussions and reports.
As well, we heard that the G20 (with the likes of India, China, Brazil and Russia included) agreed they must keep spending the $US5 trillion of economic stimulus and delay any unwinding of emergency fiscal and monetary measures until economies are sturdy enough to stand on their own.
Although the world economy has improved noticeably from April, when the Group of 20 finance ministers and central bankers last met, the closing statement said they would not remove economic stimulus until the recovery was well entrenched.
And any move to withdraw this stimulus and other policies should be coordinated in some way to avoid adverse international fallout.
And yet there was Malcolm Turnbull on the Nine Network Sunday morning again banging on about how Australia should move first to withdraw or wind back stimulus spending.
He ignored that the Reserve Bank’s interest rate cuts have been a far greater stimulus than the spending from Canberra, and reversing those cuts could start happening later this year, if unemployment is not too much of a concern.
The G20 did discuss ways of establishing a safer financial system for the future, besides trying to find consensus on precise plans to rein in bankers’ bonuses.
That has been a very European obsession, especially France and Germany.
Australia and New Zealand seem more advanced on issues of bankers’ pay and bank capital needs and liquidity with policy papers issued, or about to be issued in both countries on these issues.
Of greater importance to markets and the various economies will be measures to force banks to boost capital holdings and allocate more capital to riskier deals.
That was discussed and there was some agreement on the broad outlines of a new regulatory framework for financial institutions that stops short of setting caps on bankers’ bonuses but leaves open the possibility that regulators will have a say on pay.
The Finance Ministers agreed on three major points about banking regulation: (a) banks must raise much more capital once the financial crisis has passed, (b) complex financial institutions should develop “living wills” to plan for their unwinding should that ever become necessary and (c) banks should be required to retain some part of loans they repackage and sell as asset-backed securities.
The extra capital would be high quality, tier one capital and not hybrids or lesser forms of equity that might qualify for Tier 2.
US Treasury Secretary, Tim Geithner said America would sign up to the Basel rules on bank capital and said afterwards that things can never go back to what they were before the crash.
The G20 agreed these new rules should be extended to cover bank leverage ratios, which is hoped will limit the gearing of balance sheets, something that was a factor in every collapse, especially Bear Stearns and Lehman Brothers.
Greater stability would be achieved by “requiring banks to hold more and better quality capital once recovery is assured” and developing “an international set of minimum quantitative standards for high quality liquidity”.
US Chancellor of the Exchequer, Alistair Darling got it right when he said after the meeting that “If we simply concentrate on bonuses we’ll be making a big mistake.”
The credit crunch and then the recession flowed from more than banking pay, which merely reflected the risky and leveraged nature of the deals.
"We cannot put the world in a position where things go back to where they were at the peak of the boom," US Treasury Secretary Timothy Geithner said.
"It cannot happen, will not happen and you can’t expect the markets to solve that problem on their own because it’s a huge collective action problem…so it has to come through things that countries legislate."
"The classic errors of economic policy during crises are that governments tend to act too late with insufficient force and then put the brakes on too early," Geithner said. "We are not going to repeat those mistakes."
In a final statement, the G20 officials from rich and developing countries also said they would work with the International Monetary Fund and Financial Stability Board (to which China and India have been added) to develop cooperative and coordinated exit strategies.
New Zealand has already introduced its own system, as explained in the current issue of The Economist.
That will have some bearing on Australia because our big four banks control around 80% of the NZ banking market and have
