Deutsche Bank’s CEO Josef Ackerman touched off a storm a few weeks ago as chair of the Institute of International Finance when a working paper there suggested revisions to mark-to-market because values in an illiquid market “results in valuations that do not provide a true picture of the financial positions of the firms.” Meanwhile the UK FSA has chimed in, saying it may consider employee compensation plans when judging the risk of an institution. Ouch. More risk, higher capital requirements?
Do large cash bonuses lead to outsized risks? (one prelimary step might be to look at risk adjusted returns which apparently JPMorgan already does. And they also came through the current problems pretty well … hmm) which the ICF seems to be in favour of. The FT thinks the reforms might take hold because ramifications from the banking crisis have extended far beyond the investment banks.
Banks worry that the first change will be that it will lose its best people. Regulation could help there, and coordination among the major financial centers could keep traders from hopping oceans to find a bank that continues to pay big bonuses.

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