The U.S. Treasury made a veiled counterattack against Michel Barnier, the European commissioner, on Wednesday night, ahead of a meeting that could expose the transatlantic faultlines on financial regulation.
Mr. Barnier is due to meet Tim Geithner, U.S. Treasury secretary, in Washington on Thursday, a day the Financial Times published details of a letter from the Brussels commissioner in which he warned the U.S. to speed up and toughen its banking rules.
In the nightly guidance issued on Mr. Geithner's schedule, the Treasury states that the two men "will discuss the United States' intense focus on making certain that all key financial centers live up to the G20's commitments on central clearing and trading of derivatives" - an area where the U.S. is more advanced in implementing rules and where European proposals are less stringent.
The guidance continues that Mr, Geithner "will underscore the U.S.'s continued commitment to implementing our Basel agreements rigorously and on the agreed timelines, and our firm expectation that others do the same".
Mr Barnier's letter criticized the U.S. for not implementing fully previous international agreements on capital made at the Basel committee of regulators. But U.S. officials counter that Europeans seem to be allowing their banks too much leeway in interpreting the rules and are calling for tough peer reviews to ensure no country is gaming the system.
In the most explicit counterblast to Mr. Barnier's letter, the Treasury said that Mr. Geithner would "emphasize" that regulatory restrictions on bankers' compensation should be "focused on reducing incentives towards excessive risk taking … rather than prescribing particular designs or levels of individual compensation."
The European Union has gone further than the U.S. in ordering its banks to curb cash levels of bonuses at specific limits and exhorted Washington to follow suit. U.S. officials say the focus on pay is wrong-headed and more attention should be paid to other areas of financial regulatory reform such as capital and derivatives.
In the letter sent last week to Mr. Geithner, Mr. Barnier, the European commissioner in charge of financial markets, argued that Brussels was ahead of the US in several areas - including capital requirements for banks and limits on bonuses for financial executives.
"The level playing field must be a reality, not an empty slogan," he wrote in the May 27 letter, which was obtained by the Financial Times.
The U.S. moved quickly to pass the so-called Dodd-Frank act, the legal underpinning for the new U.S. regulations, but EU officials argue that the Obama administration has not moved quickly enough to implement the regulations necessary to give the new laws legal teeth.
However, Mr. Barnier is himself facing suggestions that the EU has watered down important aspects of its latest drive to beef up capital requirements for its banks according to the terms of the Basel III agreement. US officials argue that European regulators give their banks too much latitude on capital definitions.
In his letter, Mr. Barnier underlined European concerns about the U.S. commitment to Basel standards. The U.S. has yet fully to implement Basel II. "As you may recall, we implemented Basel II already in 2006," Mr. Barnier wrote. "It is essential to respect the deadlines agreed last year."
Potentially more explosive is Mr. Barnier's push to get the U.S. to put more limits on bonuses for U.S. bankers, which the EU believes is essential to limiting incentives for U.S.-based executives to take excessive risks.
The big industrialized nations agreed to curtail incentives for such risk-taking at the G20 meeting in Pittsburgh two years ago, but the US has mostly used non-binding guidelines to implement the deal and does not enforce specific cash-limits on bonuses.
Mr. Barnier wrote that he thinks the U.S. approach "leaves too much latitude for financial institutions" and allows them to "circumvent globally-agreed principles".
"I think you agree with me that 'bankers' bonuses' is a matter that continues to cause public outrage," Mr. Barnier wrote.
"Getting this matter right is key to restoring our citizens' confidence in the financial system - and ultimately - their confidence in the public authorities regulating the financial institutions."