IMF head calls for financial reform

Sat, Jan 30, 2010, 00:00

The head of the International Monetary Fund, Dominique Strauss-Kahn, has said that coordinating global financial reform was crucial but that this was not happening.

Speaking on the fourth day of the Davos economic summit, Mr Strauss-Kahn, highlighted the lack of discussion on US president Barack Obama’s planned banking reforms before they was unveiled just days before the Swiss conference.

“The question of co-ordinating the financial reform is key and I’m afraid we’re not going in that direction,” said Mr Strauss-Kahn.

The Basel reforms that forced financial institutions to set aside greater capital reserve to protect against potential losses took 12 years to put together, he said, and that the coordination of financial sector reform was a top priority.

“We don’t have 12 years to build the reform of the financial sector so we need to build it,” said Mr Strauss-Kahn. “I understand why president Obama has to propose those things but we cannot have different types of regulation in different parts of the world."

The US plans, devised by former Federal Reserve chairman Paul Volcker, aim to cut the size of large banks and curtail their riskiest activities, stopping them from owning hedge funds or highly leveraged private equity units, or trading on their own accounts through proprietary trading.

Deutsche Bank chief executive Josef Ackermann warned that caution was needed if the financial sector was to recover fully.

“We should better keep everything on the cautious side. The banking sector is clearly benefiting from tremendous initiatives taken by governments and central banks but there are also risks of timing and exit strategies,” he said.

Senior bankers at Davos, including Mr Ackermann and Barclays president Bob Diamond, have proposed a global tax on banks to cover the cost of a financial collapse. The move was seen as a response to president Obama’s plan to levy a $90 billion tax on the banks to recover the cost of the banking bailout.

“I’m advocating a European rescue and resolution fund for banks,” Mr Ackermann told the Financial Times, so the costs of future bank failures are paid for “to a large degree” by other banks.

US Congressman Barney Frank, chairman of the US House Financial Services Committee, praised the bankers for supporting a financial support fund. “Dropping the objection to [the levy] in principle is a major recognition of reality by them,” he said.

President Obama's reforms, so-called “banker bashing” and the return of large bankers’ pay packages have dominated proceedings at the Davos gathering of the political and business elite this year.

A group of leading bankers, led by Mr Ackermann, were today reported to be preparing to present politicians with plans to limit financial sector pay cap as part of a co-ordinated response by the industry to government attempts to impose wide-ranging regulations on the financial system.

Central bank and government officials from the US, the UK, China and the European Commission met senior bankers from Deutsche Bank, JP Morgan Chase, HSBC, Bank of America and Standard Chartered in private today to discuss regulatory reforms.

Mr Ackermann is said to have floated the possibility of a cap at a meeting with other senior bankers in Davos on Thursday.