Banks, regulators agree need for global response

DAVOS, Switzerland Sat Jan 30, 2010 12:06pm EST

1 of 2. Lawrence Summers, Director of the National Economic Council attends a session at the World Economic Forum (WEF) in Davos January 29, 2010.

Credit: Reuters/Michael Buholzer

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DAVOS, Switzerland (Reuters) - Leading bankers seeking to quell a political backlash over their role in the financial crisis agreed with regulators on Saturday that new banking rules should be globally consistent.

A closed-door meeting of dozens of financial sector heavyweights on the sidelines of the World Economic Forum made some progress on bank capital and liquidity requirements, and legal structures, participants said.

But the bankers and regulators skirted the issue of a global insurance levy to make sure that banks -- not taxpayers -- pay for future mistakes, and no firm agreements were reached.

Larry Summers, top economic adviser to President Barack Obama, who is under fire from Wall Street over his plans to curb big banks, said the "vigorous, constructive discussion" had raised the level of understanding.

Financial Stability Board chief Mario Draghi said global regulators were working on proposals for a central agency to manage bank failures, and mulling ideas for capital surcharges or contingent capital for institutions deemed too big to fail.

"We want to have an authority or an agency which has the power, the funds, the budget and the competence to manage failure in an orderly way," he told Reuters Insider television.

But other participants were skeptical of any cross-border body that would impinge on national sovereignty.

Congressman Barney Frank, piloting tough legislation to regulate Wall Street, said after the talks: "No one got up and said don't regulate us. They would be wasting their time if they did. They all understand regulation is coming."

In a panel discussion on the world economy, Summers and International Monetary Fund chief Dominique Strauss-Kahn said growth was returning faster than expected but a better balance was needed between exporting and importing nations.

Summers also highlighted the high toll in unemployment, saying: "What we are seeing in the U.S. is a statistical recovery and a human recession."

China's deputy central bank head, Zhu Min, told delegates the emerging economic powerhouse was working to achieve more balanced growth and boost private consumption this year, but the switch from exports to domestic demand would take time.

Trade ministers from major economies, meeting on the sidelines of the annual Davos conference, voiced gloom about prospects of a global trade liberalization deal this year and many blamed the United States for foot-dragging. Washington sent only a deputy ambassador to the informal talks.

NO-DEAL ON LEVY

British finance minister Alistair Darling told Reuters after the talks with bankers: "Firstly we are agreed that whatever we do, it needs to be universal.

"What has changed is there is an acceptance on the part of banks that they need to make changes and they need to make changes quickly because that is what people expect."

Darling said a wind-down levy to cover the cost of bank failures was "one of a number of ideas" discussed, but there was no agreement.

Draghi said the idea of a global insurance levy was not discussed but others said it was among ideas kicked around.

Brian Moynihan, chief executive of Bank of America, described the talks as "robust." Reporters glimpsed white boards with action points headed "Capital Requirements," "International Regulatory Cooperation" and "Risk Assessment" in the room.

The IMF's Strauss-Kahn called for a speeding up of new rules on capital requirements for banks.

"The question of coordinating this financial sector reform is top priority. We're not going exactly in the right direction," Strauss-Kahn said in an oblique reference to Obama's proposals to bar commercial banks from proprietary trading and ties with hedge funds and private equity funds.

European Central Bank President Jean-Claude Trichet also warned of the danger of divergent responses, saying: "If we do not have a global set of coordinated rules and regulations, it's a recipe for catastrophe."

Summers and Zhu skirmished politely about global economic imbalances.

"Not everyone can have export-led growth," the White House adviser said. "Countries (that) traditionally have export-led growth desire to continue that growth; countries that have been substantial borrowers want to reduce that borrowing. There's a mismatch, It's serious... it's an adding up problem."

Zhu said China's purely export-led growth model was not sustainable but could not be changed overnight.

"We want to increase consumption but it will take some time," he said. "We need global coordination on structural change...for us to increase consumption and for others to increase consumption or to increase savings."

(Additional reporting by Lisa Jucca, Dominic Evans, Ben Hirschler, Gleb Bryanski and Gerard Wynn, writing by Paul Taylor, Editing by Hans Peters)

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