Banker-bashing: how far will the G20 go?

World leaders gathering in Pittsburg on Thursday will be keen to show just how strict they plan to get with bankers in the name of global financial stability. Banker-bashing, as everyone knows, is fun and the G20 promises to be a carnival of this popular political arcade game.

But how to chose between ways to stop the financial fat cats growing ever fatter on the cream of capitalism?

One method gaining popularity is to sidestep regulating pay and bonuses per se and instead initiate bonus reform by simply raising capital requirements. Setting aside 30 per cent of profits as a cushion for bad times would immediately reduce the potential bonus pool by the same margin.

Another method, set to be advanced today by the Conference Board - a coalition of US companies, investors and directors - involves the direct overhaul of executive pay. Noting a "loss of trust" in US companies, the group is calling for elimination of practices including severance payments, tax refunds and the personal use of corporate jets.

The group also calls for provisions to "claw back" pay from executives who are found guilty of misconduct and the disclosure of fees paid to compensation consultants. Rajiv Gupta, co-chair of the panel, told the FT: "Trust has been lost in the last few years and needs to be rebuilt. Regulation alone cannot do that."

But even if bankers accept responsibility - Lloyd Blankfein, chief executive of Goldman Sachs, recently acknowledged that public anger over pay was "understandable and appropriate" - politicians are far from agreeing on anything beyond the principle of banking reform.

French President Nicolas Sarkozy (above) was one of the first out of the gate when he backed European calls for a cap on bonuses last week. By yesterday, recognising that his boss's idea is opposed in Washington and London, French finance minister Christine Lagarde was refining the approach, proposing a "limit on the bonuses as a percentage of activity".

But even relatively simply measures will prove difficult to enforce. Bankers, after all, are masters of finding and exploiting loopholes - it's called competitive advantage.

Still, reform proposals are the political fashion of the moment. In Washington yesterday, Senate banking committee chairman Chris Dodd proposed reform of the US regulatory system. Instead of four bank regulators, Dodd proposes one banking 'super-regulator' to prevent banks from shopping around for the most lenient agency.

For the rules to work, bankers will have to suffer. But the purpose of reducing banker compensation remains confused. Is it a catharsis for the bank bailouts or to remove incentives for taking reckless risks? And are politicians willing to risk their own political capital fighting some of their most valuable campaign donors?

"We will not go back to the days of reckless behaviour and unchecked excess at the heart of this crisis, where too many were motivated only by the appetite for quick kills and bloated bonuses," President Obama said last week. "Wall Street cannot resume taking risks without regard for consequences, and expect that, next time, American taxpayers will be there to break their fall."

Meanwhile John Thain, the former chief executive officer of Merrill Lynch and infamous for redecorating his office at a cost of hundreds of thousands of dollars even as Merrill teetered on the brink of collapse, has confirmed it would have been more prudent to buy inexpensive furniture.

Thain, who was fired after it was disclosed he had rushed through Merrill employees bonuses ahead of the bank's $29bn acquisition by Bank Of America, now says he regrets buying furniture for his office that included a $35,000 commode and a $25,000 antique mahogany pedestal table.

"We decorated it in the style that Merrill Lynch offices were, which was very, very nice," he said during a speech in Philadelphia. "That was a mistake, and I'm sorry that I did that. If I had that to do over again, I'd furnish it in Ikea."

“Stop by anytime,” said a spokeswoman for the retail giant. ·