Political and financial leaders gathered in the snowy mountains of Davos, Switzerland on Wednesday for the opening of the 40th annual World Economic Forum amid a global rethink of how to regulate financial institutions.
French President Nicolas Sarkozy threw his support behind placing limits on banks in his opening speech at the 40th annual World Economic Forum in Davos on Wednesday. Some 30 heads of state and 2,500 business leaders are convening in the snowy Swiss mountains amid a global rethink of how to regulate financial institutions and promote fiscal responsibility.
Bankers are expected to launch a counter-offensive during the forum against recent moves to limit the growth of banks into mega-conglomerates that encompass disproportionate amounts of national wealth, forcing governments to provide taxpayer-funded bailouts when the firms risk collapse.
US President Barack Obama unveiled plans last week to limit the size of banks, vowing that, “Never again will the American taxpayer be held hostage by a bank that is too big to fail.” His plan also called for financial institutions to more narrowly define their activities, forcing them to choose between proprietary activities - such as stock market speculation and dealing in sometimes risky financial instruments - and commercial activities like overseeing deposit accounts and loans.
The G20’s Financial Stability Board (FSB) followed suit, saying it would look into banking reforms on a global scale like those proposed by Obama for the United States. In a Jan. 24 statement, FSB Chairman Mario Draghi echoed Obama’s concerns over the "risks posed by too-big-to-fail institutions".
Speaking in Davos on Wednesday, Nicholas Sarkozy criticised the capitalism of the past for gambling with “other people’s money” and derided the focus on making a quick and easy profit, “often without the creation of any real wealth or jobs”.
He hailed the Obama vision of smaller banks with more narrowly defined pursuits. "President Obama is right when he says that banks must be dissuaded from engaging in proprietary speculation or financing speculative funds," Sarkozy said in his opening speech.
Sarkozy empasised that the global financial crisis was not a crisis of capitalism, telling the crowd that the free market system is the only viable option. But going forward requires a rethink, he said: “What type of capitalism do we want?”
Under fire, bankers ready a counter-offensive
The head of British banking giant Barclays, Robert Diamond, was among the first to speak at the conference on behalf of banks. Forcing firms to downsize, he said, would not avoid the missteps that led to the global financial crisis and could in fact do more harm than good.
"I have seen no evidence ... to suggest that shrinking banks and making banks smaller and narrower is the answer," he told the forum. On the subject of mandatory curbs, he warned that the "impact of that on jobs, on the economy, in particular global trade and on the economy - that would be very negative”.
According to a PricewaterhouseCoopers poll released in Davos, 60 percent of banking chief executives are "extremely" or "somewhat" concerned by the possibility of over-regulation. Politicians in many countries are riding a wave of popular anger at corporate fiscal irresponsibility and the multi-million-dollar banker bonuses that have fuelled a rush to implement new government controls.
Date created : 2010-01-27