In a meeting at the Elysée Palace today, French bank directors put forward their proposals for the variable compensation of financial market professionals. This move consolidates the commitments made and measures taken six months ago, in keeping with the G20 initiatives. It also testifies to the banks' determination to become global leaders in terms of performance, security and ethical practices, particularly when it comes to the compensation of corporate and investment banking employees.
The French bank directors also confirmed their efforts towards financing the economy, as notably shown by the +3.5% growth in loan outstandings at the end of June 2009.
In February 2009 France became the first country to define and implement guidelines for the compensation, and particularly variable compensation, of financial market professionals, in line with the decisions made at the G20 summit. These officially sanctioned professional standards are valid from 2009, must be applied in their entity and are monitored by the French Banking Commission.
The new commitments supplement the previous measures taken and, like them, are designed to ensure that compensation policies do not promote excessive risk-taking. They align the behaviour of financial market professionals more closely with the long-term security of companies and the financial system.
- Clarifying the Governance rules: The internal decision-making processes applicable to CIB compensation (role of the compensation committees, the board of directors, the risk division, etc.) will be strictly defined. Variable compensation will also only be paid out once the accounts have been closed and the board and the compensation committee have been consulted.
- Improving transparency: French banks will systematically publish a detailed supplement to their annual income statements describing the guidelines used to determine the compensation policy for their CIB arm, particularly the consideration of risks. The supplement must also state the total amount of the global compensation for CIB employees and the deferred portion.
- Spreading the payment of variable compensation: On average, more than half of the total variable compensation amount will be spread over 3 years (n+2, n+3, n+4), rising to at least two-thirds for the largest compensation amounts.
- Introducing a bonus-malus system: Variable compensation must reflect the overall level of profit effectively and collectively achieved by the team and the company. A fraction of this variable portion may therefore not be paid (malus).
- Vital sharing of good practices by every country: Given the international and ultra-competitive nature of the markets, countries must all share the same guidelines. The French initiative, which was recently taken up by the UK and Germany, marks the launch of a raft of European guidelines that should be shared by all the markets. This is one of the key objectives of the G20 summit in Pittsburgh, supported by the French banks.
Loan outstandings in France continued to grow (+3.5% between June 08 and June 09) despite the significant deterioration in the economic environment. French banks have held up well given the crisis and are maintaining their proactive approach towards financing the economy. The demand from individual customers is for housing loans, stimulated by more advantageous interest rates and government assistance measures (interest-free loans and the Sellier law introducing tax abatements on rental investments).
As for business customers, although growth in short-term loans is being held back by the fall in demand, medium-term loans are on the rise and are the vehicle through which banks are financing the future.
Overall, France is currently experiencing the largest increase in loan outstandings in the Euro zone.
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