DAVOS, Switzerland (Reuters) - The world’s top bankers are at odds about how to fight back against a global push for tougher financial regulation, with commercial and investment banks struggling to reach agreement.
Top executives from leading U.S. and European banks held behind-the-scenes talks on their response, people attending the talks said. But a deal has proved elusive.
Regulators and policymakers, meanwhile, appeared to have struck some common ground at the World Economic Forum, agreeing on the need to ensure changes to the rulebook — from banker pay to lenders’ activities — are global, and not unilateral.
The annual forum in the Swiss mountain resort of Davos has reverberated with U.S. President Barack Obama’s plans to curb the activities of major banks, particularly betting in financial markets with their own money, sparking a fierce debate on the necessary overhaul and the risks of excessive correction.
“We had a global problem ... we have to find a global solution,” European Central Bank President Jean-Claude Trichet said on Friday. “We are bound to succeed. But it has to be done very, very carefully, seriously at the global level.”
Ministers and officials from G20 nations, the International Monetary Fund and the Financial Stability Board held informal talks at Davos on Friday, which Canadian Finance Minister Jim Flaherty said centered on mutual assessment of financial systems.
“There was unanimity that we ought to go ahead ... and use the work of the FSB and the G20 and try to get the implementation done this year, 2010,” he told Reuters.
“When we’re dealing with (bank) capitalization rules, liquidity rules, leveraging, I’m hopeful ... that we all get those rules right and agree on those. On executive remuneration there may be some divergence of opinion,” Flaherty said.
There were also differences on Obama’s proposal to stop commercial banks engaging in proprietary trading, he said.
The head of the Swiss National Bank, whose country does not belong to the G20, had earlier urged the group to fold the U.S. plans to tax and curb banks into the G20 agenda.
During the financiers’ talks, annual conversations that have taken particular prominence this year, Wall Street’s largest banks and some European investment banks argued for a common front against politicians who are calling for much tougher measures to regulate the industry in the wake of the financial crisis.
But they did not win over the heads of some commercial banks and even some European peers, who believe the industry needs to be more conciliatory, sources familiar with the talks said.
“The tough line of the large investment banks is very different than the approach of the major commercial banks,” said one of the sources on Friday. “It looks like it is very difficult to reach a common position.”
The banks held the discussions ahead of an expected meeting with regulators and lawmakers on Saturday.
“What we are trying to achieve is to engage in a good dialogue with all the relevant parties, the regulators and the political side,” said Brian Moynihan, the CEO of Bank of America Corp., who confirmed the bankers’ meeting took place.
U.S. economic adviser Larry Summers, however, showed little sign of conciliation, telling the forum that U.S. policies were not a curb on banks’ businesses and would only limit profits made on the back of government support.
“The policy is a constraint on purely proprietary trading. It is not a constraint on doing business with customers, so it does not by definition interfere with their ability to serve their customers,” he said.
Bankers attending the annual Davos jamboree, in boom years an opportunity for lavish parties and networking, have used the forum to vent exasperation at their demonization at the hands of the public and politicians.
One top banker who attended the financiers’ meeting said much frustration was expressed by executives who thought they had changed a lot in the past year but that politicians just were not listening.
“There is a common language (with) regulators, central bankers ... and increasingly a very constructive dialogue,” Peter Sands, CEO of Standard Chartered, said.
“The more challenging strand of how banks and bankers craft a new relationship with society is on the political side,” he said, adding the industry had been “tone deaf” and insensitive.
Top industry figures including Barclays President Bob Diamond and Deutsche Bank Chief Executive Josef Ackermann have taken the stage in Davos to warn policymakers against unilateral action on regulation that would threaten fragile political consensus on new rules within the G20.
“The solutions have to be consistent enough that we can operate,” Moynihan told Reuters at the Swiss resort.
Some economists, however, have said it may suit banks to spin out the negotiations on an agreed set of rules in hopes of delaying and watering down changes as the economy improves.
Reporting by Lisa Jucca and Martin Howell; Additional reporting by Paul Taylor and Krista Hughes; Editing by Mike Peacock