Financial Services Update

October 11, 2010

Authored by: Matt Jessee

September Jobs Numbers Released

On Friday, the Department of Labor reported that the economy added 64,000 jobs but lost a net of 95,000 nonfarm jobs in September, the result of a 159,000 decline in government jobs. Of the loss in government jobs, 77,000 were temporary Census Bureau employees, 76,000 were in local governments, and 7,000 in state governments. The Bureau of Labor Statistics also released preliminary revisions to the model used to estimate job changes from month to month, indicating that the recovery has been even weaker than initially reported. The Bureau says it expects to revise down the level of employment in March 2010 by 366,000 jobs, which means jobs gains had been about 30,000 weaker each month over the 12-month period that began in March 2009.

New EU Regulations on Bankers’ Bonuses

On Thursday, the Committee of European Banking Supervisors (CEBS), which is made up of the twenty-seven member states of the European Union’s banking regulators, met in London to vote on proposed regulations on bank employees’ compensation. The preliminary rules released on Friday indicate that up to 60 percent of top bankers’ bonuses would be required to be deferred for a minimum of three years and as long as five years. However, the rules remain unclear on the precise duration of retention requirements. The preliminary rules will now be the subject of a month-long consultation process, with the final rules due to come into effect in January 2011. Other key new rules will be a requirement that banks and national regulators jointly impose a maximum multiple of salary that can be paid as a bonus to bankers. On the issue of deferral, the insistence that half of upfront pay be paid in shares, rather than cash, overrides an existing rule in the UK, where the Financial Services Authority regulations currently insist that total bonuses be share-based. The preliminary rules also clarify that deferral periods should typically extend over three years but must in any case be no shorter than one year. The rules also clarify that bankers will be barred from hedging the “claw-back” provision on deferred bonuses. The new rules will apply to EU banks’ operations globally, but only to the European arms of non-EU banks.

DOJ Settles with Visa and Mastercard

On Wednesday, the U.S. Department of Justice announced that Visa and MasterCard have agreed to a settlement concerning the Department’s antitrust civil suit. According to the terms of the settlement, Visa and MasterCard have deleted rules in their contracts that prevented merchants using their cards from encouraging customers to use other card brands carrying lower merchant inter-change fees. The settlement would allow retailers to offer rebates or discounts to consumers who agree to use their preferred method of payment. American Express, who was the third party to the Department’s civil suit, declined to settle and is still fighting the lawsuit.

IMF Meets in Washington

On Friday, finance ministers and central bankers from the International Monetary Fund’s (IMF) 186 member states began their meeting in Washington that will run through Sunday. U.S. Treasury Secretary Timothy Geithner began the meeting saying “the United States believes that global rebalancing is not progressing as well as needed to avoid threats to the global economic recovery.” IMF members are expected to discuss how to reform decision-making at the Fund and give more say to emerging and developing economies. Of the 24 seats on the IMF’s board, Europe currently holds nine and said it was willing to rotate two of those spots with emerging markets. With regard to the debate over Chinese currency, IMF chief Dominique Strauss-Kahn said at the meeting’s outset that the United States was “right” to link IMF reform to China’s currency policies. European officials said a rapidly rising euro, victimized by an undervalued US dollar and Chinese yuan, could threaten eurozone recovery and vowed to press both Washington and Beijing to take action. In its latest economic outlook, the IMF said growth would slow more than previously expected in 2011, as the United States, Europe and Japan continue to struggle and China remains overly dependent on exports.

If you have questions regarding any of these issues, please contact:

Matt Jessee, Policy Advisor
matt.jessee@bryancave.com
1 314 259 2463