G20 finance leaders pledged on Saturday to keep economic life-support packages in place for now, slap tighter controls on bankers' pay and give a bigger voice to emerging markets in the international institutions. A draft of their joint statement showed that finance ministers and central bankers meeting in London agreed fiscal and monetary policy would stay “expansionary” for as long as needed so as not to derail recovery from the worst financial crisis since World War II. The global economic outlook is certainly a lot better since the last of a string of G20 meetings designed to extract the world from a deep recession. But policymakers are clearly worried about derailing that recovery. “We will continue to implement decisively our necessary financial support measures and expansionary monetary and fiscal policies consistent with price stability and long-term fiscal sustainability until a recovery is firmly secured,” the draft said. The finance chiefs also agreed to create a global structure for imposing tighter controls on pay at financial institutions to discourage bankers from making the kind of risky bets that started the crisis back in Aug. 2007. These included deferring bonus payments over time and subjecting them to “clawback” in case things went sour, but fell short of the cap that some countries had wanted. The compromise was that the Financial Stability Board, a global regulatory council headed by Bank of Italy chief Mario Draghi, would study the issue further. The draft also said 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 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. G20 finance leaders sketched out plans on Saturday that would force conservative rules on banks to curb risky lending, blamed for triggering the financial crisis. A Group of 20 source told Reuters that finance ministers and central bankers supported a US 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.” The G20 also agreed that the Financial Stability Board will develop “global living wills” for banks so that they can be safely shut when they are in danger of failing. The plan will include “steps that will allow depositors to be protected while the investment side is wound down.” Finance leaders were meeting in London to lay the groundwork for a G20 leaders summit in the United States later this month, and an agreement on bank capital rules would mark a break-through on the contentious issue of banking reform. The economy looked brighter than it had in April when G20 finance ministers and central bankers last met, shifting the focus from crisis fighting to figuring out how to prevent a repeat of the financial upheaval that began two years ago. US Treasury Secretary Timothy Geithner caught many of his colleagues by surprise when he announced his proposal for tougher capital rules just one day before the G20 meetings began. Some officials complained that there was no time to study the proposal.
