Geithner: markets alone can't solve bank pay issue

LONDON (Reuters) - U.S. Treasury Secretary Timothy Geithner said on Saturday markets can not be left to solve problems like bankers' pay on their own adding the Group of 20 nations were in general agreement here on the need to curb excessive pay deals.

"I think there is really quite broad agreement on the core standards or principles that should guide reform," he said at a press conference at the conclusion of a two-day meeting setting the agenda for a full summit in Pittsburgh later this month.

"We're going to get the Financial Stability Board to see if they can get a consensus on how to move forward on that," he said, adding all acknowledged that excessive risk-taking by highly-paid bankers was one source of a financial crisis that is finally beginning to ease.

He said it was vital to "bring greater urgency" to efforts to reform the financial system while the memory of the crisis' impact was fresh and pay reform needed to be part of that.

"Market discipline alone will not bring about a more stable, resilient financial system," Geithner said. "The great failure of regulation was the failure to prevent the build-up of excess leverage and risk within and alongside the banking system."

Before the meeting, European officials had sounded especially strident about the need to put limits on bankers' pay, citing public outrage at the fact that banks that received taxpayer subsidies seemed to be taking a business-as-usual approach by reinstating big bonuses and pay packets.

LEGISLATE PAY RULES

Geithner said the United States set out proposals for reforming pay practices in February and said Congress was moving swiftly to require firms to submit compensation practices to a shareholder vote.

He claimed no country wanted to set actual limits on compensation but instead aimed to link pay reform to broader efforts to instill greater stability in the global financial system.

"We cannot put the world in a position where things go back to where they were at the peak of the boom," Geithner said. "It cannot happen, will not happen and you can't expect the markets to solve that problem on their own because it's a huge collective action problem...so it has to come through things that countries legislate."

Geithner brought his own proposal to the G20 for imposing more rigid capital set-aside provisions on banks and by the end of the meeting could claim some support for it.

The initial hostility with which Geithner's surprise proposal was greeted appeared to fade after U.S. officials made clear the United States will adopt so-called "Basel II" banking rules that have been in development for an extended period.

Geithner said the global financial system was being repaired and economic growth was beginning to resume. But he warned that unacceptably high unemployment threatens sustained growth.

"Conditions for a sustained recovery led by private demand are not yet established," he said, adding to the consensus in London that it remains necessary to keep extraordinary fiscal and monetary stimulus measures in place until the economy is on firmer footing.

But with fear about the potential for a breakout of future inflation, it also was vital to maintain credibility by making clear that countries will quickly reverse emergency measures as soon as they can safely do so, he said.

U.S. officials said ahead of the G20 meeting that they expected it to be mainly a "stock-taking session" as they prepared the ground for Pittsburgh's higher-profile gathering.

(Reporting by Glenn Somerville, editing by Patrick Graham)