Thursday, June 02, 2011

Treasury Secretary Geithner Underscores Focus on Basel and Derivatives Regulation to EU Commissioner Barnier

According to Treasury Daily Guidance, in meetings with European Commissioner for Internal Market and Services Michel Barnier, Treasury Secretary Tim Geithner emphasized the intense focus on making certain that all key financial centers live up to the G-20’s commitment on the central clearing and trading of derivatives. In addition, he underscored the U.S.’s continued commitment to implementing its Basel agreements rigorously and on the agreed timelines, and the firm expectation that others do the same. The Secretary also said that the fundamental objective of the Financial Stability Board’s work on compensation is focused on reducing incentives towards excessive risk taking, an approach that the US believes to be most effective to maintaining financial stability, rather than prescribing particular designs or levels of individual compensation.

The Financial Stability Board recently launched its second peer review on executive compensation practices. The review will assess the progress made by national authorities and significant financial institutions in implementing the FSB Principles for sound compensation practices, which have been endorsed by the G-20, as well as the impact on compensation practices at financial institutions of national policy measures taken to implement the principles. The G-20 has endorsed the compensation Principles of the Board. According to the G-20, regulations must ensure that compensation structures are consistent with firms’ long-term goals and prudent risk taking. Compensation, particularly bonuses, must properly reflect risk; and the timing and composition of payments must be sensitive to the time horizon of risks.

Last October, Commissioner Barnier and Secretary Geithner reaffirmed their commitment to continue their strong and close bilateral co-operation on regulatory reform in the OTC derivatives markets. The officials said that this co-operation has allowed for the proposed new rules regarding the clearing of OTC derivatives and the development and supervision of derivatives infrastructure to be consistent and implemented in an open, convergent, and non-discriminatory manner. They also confirmed their commitment to achieve convergence during the implementation and the finalization of all the OTC derivatives reforms on both sides of the Atlantic.