Bank reform battle dominates Davos summit

DAVOS, Switzerland - Bankers and political leaders took their battle over post-crisis regulation to the World Economic Forum’s annual meeting, which started in the Swiss mountain retreat of Davos on Wednesday.

By (AFP)

Published: Wed 27 Jan 2010, 9:47 PM

Last updated: Mon 6 Apr 2015, 10:27 AM

Amid clear blue skies and snow-capped peaks, 30 presidents and premiers and 2,500 business and other elite were attending the 40th anniversary forum seeking to dispel new storm clouds hanging over the global economy.

While the International Monetary Fund has predicted world growth will be stronger than expected in 2010, warnings have been made about strong measures needed to save millions of jobs.

But the main focus is on reform of the finance industry, with top bankers making a return to Davos to fight what they fear will be over-regulation.

The head of British finance giant Barclays Robert Diamond was among the first speakers to defend big banks here, saying forcing them to downsize would not avoid a repeat of the financial crisis.

“I have seen no evidence ... to suggest that shrinking banks and making banks smaller and narrower is the answer,” he told the forum.

If banks were to become smaller, the “impact of that on jobs, on the economy, in particular global trade and on the economy, that would be very negative,” he warned.

Finance legend George Soros weighed in by calling US President Barack Obama’s plan to clampdown on banks premature.

“This development came too soon because the banks are not out of the woods,” Soros said, referring to US plan to restrict the size of top US banks and make them pay billions in special taxes.

President Nicolas Sarkozy of France will plead the case for tough reforms in his keynote opening speech later Wednesday, French officials said.

French Finance Minister Christine Lagarde said she hoped the forum “will be fruitful for speaking about financial regulation. That means everyone has to be around the table.”

The heads of Bank of America and Citigroup, Brian Moynihan and Vikram Pandit, are among global finance industry chiefs in Davos discussing the reforms.

The banking industry is arguing against what it considers stifling controls, while bank leaders are also on the defensive about bonuses.

Sixty percent of chief executives are “extremely” or “somewhat” concerned by the threat of over-regulation, said a poll by PriceWaterHouseCoopers released in Davos.

European Central Bank chief Jean-Claude Trichet offered support to the Obama plan, although in an interview with the Wall Street Journal he said there must be global coordination of reforms.

The WEF said in a report that banks would have to rethink their business models and accept “a lower profit world” and review their salaries.

“A multitude of factors point to lower run-rate industry profitability in the near and medium term. Financial institutions will need to rethink their business and human capital models in order to adjust and differentiate as a result,” it warned.

The IMF on Tuesday projected global growth of 3.9 percent in 2010, raising its original estimate of 3.1 percent, but said emerging economies, particularly in Asia, would lead the recovery.

However the UN’s International Labour Organisation revealed that global unemployment had surged to a record 212 million people — up 34 million in two years — and would remain high in 2010.

“We need the same policy decisiveness that saved banks now applied to save and create jobs and livelihoods of people... This can be done through strong convergence of public policies and private investment,” ILO director general Juan Somavia said ahead of the Davos meeting.

International shock at the extent of the Haiti quake disaster has also been reflected with several last minute changes to the Davos programme so rebuilding efforts can be discussed and new appeals for help made.

Among other leaders present here are presidents Luiz Inacio Lula da Silva of Brazil, Felipe Calderon of Mexico and Jacob Zuma of South Africa — who used a media lunch to plug the upcoming football World Cup in his country.

Also attending are Hamid Karzai of Afghanistan, premiers Morgan Tsvangirai of Zimbabwe and Stephen Harper of Canada, and South Korea’s President Lee Myung-Bak, whose country will lead the Group of 20 nations this year.

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