Efforts to limit the compensation of banking executives won't work, according to former U.S. Senator Phil Gramm, who is currently vice chairman of UBS AG's (UBS) Investment Bank division.

Ahead of the Group of 20 meeting of leading nations in Pittsburgh, where leaders are expected to tackle potential pay limits at financial institutions, Gramm said Tuesday that banks would find a way to get around any such efforts in order to attract top candidates.

The former Republican senator from Texas, speaking at a conference held by Harvard's International Economic Alliance in New York, said that, when leaders return from international summits, reality regularly sets in, and the conversation turns back to local needs.

"[It's] not going to happen," he said of limits on compensation.

However, Gramm said he is concerned about European nations trying to dictate pay practices and that such initiatives will be ineffective.

Gramm also spoke about more transparent bank-lending practices, and said the Basil II Accord on banking laws and regulations has created problems. Government efforts to revive the U.S. economy after the 2001 recession weren't helpful in the long term, he said.

"We can't help people by lending money they can't pay back," he said.

He also said that designating institutions as "too big to fail" is dangerous.

He lent his support to a plan to give the Federal Deposit Insurance Corp. the necessary resources to shut down an institution "if need be."

Gramm also said that agencies such as Fannie Mae (FNM) and Freddie Mac (FRE) don't work. Instead, future oversight agencies should be either completely government entities or totally privatized.

"A mixture like Freddie is not workable," he said.

Addressing UBS's prospects, Gramm was positive. "One of our primary objectives is to rebuild our reputational strength," said Gramm.

UBS, like other companies, is rehiring, he said. Gramm added that the firm has gone through a process which has affected compensation.

-By Riva Froymovich, Dow Jones Newswires; 212-416-2217; riva.froymovich@dowjones.com