Washington and the banks

As EU leaders push for the international regulation of bankers' pay ahead of the G-20 summit in Pittsburgh, Deutsche Welle asked Adam Cohen, a reporter at Dow Jones Newswires, just how much support Brussels is likely to receive from the Washington.

Is US President Barack Obama likely to agree with the European Union and support this plan?

"Well I'm not sure if he's going to support some of the exact ideas the European leaders discussed, but the general consensus about the need to do something to reign in banker pay - I think there is an international consensus emerging. I mean, Barack Obama made a speech on Wall Street on Tuesday, basically serving notice to bankers that the old compensation practices of the past can't continue.

If Obama doesn't endorse elements of the plan when the G-20 meets next week - are the European nations likely to soften their stance yet again?

I think that you'll see some fractures in the European stance if Obama doesn't come on board. The UK is particularly worried that without an international agreement, any curbs on bankers' pay in Europe will lead to a kind of jurisdiction shopping from bankers - that they'll pay executives in certain regions, and that this could adversely affect London, which is Europe's main financial center. So there is a UK concern about this, but I think we're probably not going to see a breakdown on this at this point. I mean, there is a pretty widespread popular outrage about this, and I think governments both in Europe and the US realize that there has to be something done, that you can't just use vast sums of public money to support banks when they fail without any consequences.

Essentially why is it so important to have America on board in this? Is it because Europe is afraid it'll lose its competitive edge, that top notch bankers won't be looking for positions in Europe?

I think that's the main concern. The idea that if you can't get a big payday in London but you can in New York, the barrier to moving is not that great, and people will do so, they'll follow the cash.

In the end, how effective would it really be to cap executive pay as per the European plan?

I'm not sure how effective it would be. The idea that you link pay to performance is not foreign to banks themselves. And the idea that bankers driven by the promise or the lure of great paydays caused this crisis is at best an oversimplification - at worst it's completely wrong. But it does serve a useful purpose: You can't use taxpayers' money to support banks and basically say that bank losses are a public problem, while bank profits are for private distribution.

But the United States' administration - they're in consensus with Europe over the argument that public money used to finance banks should not be used to pay bonuses to directors?

I think there is consensus about that. The US, prior to this recent spate of discussions about bankers' pay, has established a 'pay czar' to monitor compensation for banks that receive public money. I think the talk now is about a broader system that will limit compensation in order to prevent single executives or single traders in banks from taking excessive risks with the promise of getting a big bonus at the end of the year.

Interview: Carl Holm for European Business Week on Deutsche Welle Radio