:: Editorial

Banks key focus of G-20 in Pittsburgh

Sept.23 : The Group of 20, comprising leaders who represent 85 per cent of the world’s economy, are meeting under very trying and contentious circumstances for a two-day summit that begins in Pittsburgh in the United States on Thursday. The top four or five leaders have their own agendas, and there is a sub-agenda that could see the Europeans, led by France and Germany, trying to get their views accepted by the Anglo-Saxons, represented by the US and Britain, while China and India will be campaigning for a more balanced representation at the IMF and the World Bank. The overarching issue in Pittsburgh will be reining in the banks, the culture of paying out hefty bonuses to those who take the highest risks for short-term gains while not taking punitive action when the risks land the banks in financial turmoil. The banks will also have to be made to increase their capital and assets as buffers against any future crisis. This has been opposed by the Europeans as they feel it was the American banks which caused most of the problems. Increasing the capital of the banks could cost the US and Europe up to $875 billion, according to one IMF estimate.

Considering the belligerent mood of taxpayers in the West, particularly in the US and Britain, not to mention Europe, the G-20 cannot afford to soft-pedal the issue of disciplining banks as self-regulation appears alien to their DNA. It was not even a year since the Lehman Brothers debacle in September 2008, which snowballed into an unprecedented global financial tsunami, that top Wall Street banks started giving out liberal bonuses. They are back to their profligate ways. The most shocking case is that of Andrew Hall, a Chicago trader who is entitled to a pay package of $100 million from Citibank which, as reported, is 200 times the median US household income in 2008. Citibank chief Vikram Pandit, while agreeing that this amount is excessive, says it is part of a contract and has to be paid. Citibank, it may be recalled, received the biggest bailout package of all banks. People cannot be blamed for becoming furious when they see fat cats keep the profits for themselves in good times, while in bad times it is they (the people) who have to pick up the tab. It has been reported that 73 per cent of people in Britain polled by YouGov say they want a tax on bonuses of around £10,000, while 59 per cent of Americans indicated in a Gallup Poll that they wanted strict curbs on executive pay.

There has been a lot of talk of changing the architecture of the global financial system and the way in which trillions of dollars are transacted around the world every day, but very little appears to have been achieved on the ground. There is still a debate on whether capitalism has failed and a new ideology is needed in its place. This indicates how strong the Wall Street lobby continues to be in the US, with any attempts, however feeble, by President Barack Obama to bring discipline to the financial system being met with accusations that he is trying to usher in socialism.

India’s main concern in Pittsburgh will be to fight for curbs on protectionism and to take up WTO-related issues which are expected to be discussed on the sidelines of the G-20 summit. So far, all discussions on the US and Europe cutting subsidies have failed and these countries are still trying to railroad their way into the agricultural markets of developing countries.