Canada warns on bank bonuses, but rejects tax

Thu Dec 10, 2009 4:20pm EST
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OTTAWA (Reuters) - The Canadian government could crack down on executive bonuses if banks ignore new global rules on the matter, the finance minister said on Thursday, but rejected calls by Britain and France to tax big bonuses.

Jim Flaherty said he had informed the chief executives of the country's major banks of new guidelines on executive compensation, which remove incentives for excessive risk-taking for short-term profit by spreading payments out over a longer period.

"The G20 has guidelines, the Financial Stability Board has guidelines ... If there is not compliance there will be consequences in Canada," Flaherty told the House of Commons.

When pressed for details later, he said: "I don't expect we will have noncompliance with the G20 standards in Canada. But if we do ... certain steps can be taken."

He did not say what steps the government would take.

The bank regulator -- the Office of the Superintendent of Financial Institutions (OSFI) -- is monitoring compliance, he said.

Canadian banks have been famously solid throughout the financial crisis. Ottawa took emergency measures to boost liquidity in the banking system but fell short of outright bailouts because there was no need. That meant the issue of bank bonuses has not been as contentious in Canada as in the United States and Europe.

But one opposition party, the New Democrats, questioned Ottawa's hands-off approach on Thursday after a report in the Globe and Mail newspaper this week said the six largest banks will pay out bonuses of C$8.3 billion ($7.9 billion) in fiscal 2009, up 18 percent from 2008 and 4 percent higher than in 2007.

Flaherty responded by rejecting a joint call by Britain's Gordon Brown and France's Nicolas Sarkozy to tax big bonuses substantially to avoid the burden of future bank failures falling on taxpayers.   Continued...