Tuesday, September 22, 2009
Too Clever by Half
The noise over bankers' bonuses is growing into a virtual media cacophony in the run-up to the G20 meeting this week in Pittsburg. Everyone from economists to analysts to corporate lawyers are calling for a crackdown on the bonus culture. Nicolas Sarkozy (my new hero) is threatening to 'allez' the G20 if the group doesn't address the situation to his satisfaction (the G20 looks set to give regulators some increased authority in this area, so he will have to 'restez' instead). The SEC seems to be growing a larger pair after its courtroom drubbing in the BofA/Merrill Lynch bonus fiasco. BIS's Financial Stability Board is (of course)trying to tie bonus pools with capital requirements. Not a terrible idea, to be honest. But I worry about the ability of the global mishmash of regulators and central banks to monitor capital reserves, bonus pools and accounting standards as well as the usual fraud. I have heard many a tale where a firm will 'take profit' on future swaps or exchange deals in the current year in order to boost bonuses. It is common, not entirely illegal, and almost impossible for auditors to detect until it is too late. If the regulators work with some forensic accountants maybe they will stand a chance of outwitting the clever clogs at the banks. I won't hold my breath.