French banks agreed today to adopt a system of performance-linked pay with both bonuses and penalties for traders, France's banking federation said, following talks with President Nicolas Sarkozy.
Under the new system, BNP-Paribas is prepared to reduce the amount set aside for bonuses in the first half of 2009 by half to €500m, said Baudoin Prot, chairman of BNP and of the French Banking Federation.
Sarkozy summoned bank executives to his office today in response to the public anger triggered by the news that BNP-Paribas, which last year received a €5.1 billion state loan, was preparing to pay out €1 billion to traders.
Following the talks, Prot said that the banks had promised 'strengthened oversight and transparency' in their remuneration schemes and that bonuses could be replaced by penalties in the event banks lose money. But he warned that it would be difficult 'for these restrictions to be put in place in one country alone.'
Sarkozy is due to head to US city of Pittsburgh on September 24 in order to make France's case for greater financial regulation before the leaders of the world's leading economies at the G20 summit.
'The issue of traders' remuneration is an essential part of ensuring that the crisis we're going through is not repeated,' the French leader told the gathering today.
'But just as we are seeing the first signs of a return to stability, we also see the bad habits resurfacing. I can't accept this,' he said, according to a summary of his opening remarks released by his office.
Today's meeting was Sarkozy's first major engagement after coming back from holiday, and his seventh banking summit in a year of fraught relations with the financial sector following last summer's credit crunch.
After last year's global economic crash, Sarkozy called for stricter regulation of financial markets and an end to traders' bonus culture, which many blame for the excessive risk-taking which caused the economic collapse.
