Davos: Banks 'wake-up to reality' on wind-down levy

Barney Frank, the chairman of the US House Financial Services Committee, today praised bankers for their backing of a global wind-down fund, branding the move as a “major recognition of reality”.
On the last full day of the World Economic Forum in Davos, Mr Frank, the Democrat congressman, lauded bankers after some of the sector’s biggest lenders, led by Deutsche Bank, revealed they would support a levy that would cover the cost of a bank’s collapse – shifting the burden from taxpayers.
Mr Frank told Reuters: “Dropping the objections to [the levy] in principle is a major recognition of reality by them.”
Earlier this month, President Obama revealed plans to charge Wall Street a $90 billion “financial crisis responsibility fee” after banks were bailed out through the $700 billion Troubled Asset Relief Program (Tarp) following the collapse of Lehman Brothers in September 2008.
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return false;Mr Obama subsequently outlined proposals to crackdown on banks, to limit the size of institutions and bar them from the most cavalier trading practices.
Today, a group of influential bankers, led by Josef Ackermann, the Deutsche Bank chief, are expected to present politicians with their plans to limit bankers’ compensation.
The group’s proposals on pay will come as part of a co-ordinated industry response to widespread attempts by politicians to impose new regulations on the sector.
Banking chiefs have discussed the possibility of an industry-wide cap on remuneration. It is understood that Mr Ackermann floated that possibility at a meeting with other top bankers on Thursday, although one source said that the appetite for such a deal was limited.
While a number of senior bankers say privately that they would like an absolute cap on pay of about $5 million (£3 million), they argue it will get done only through the G20.
City sources said last night that the group of bankers were more likely to support proposals in line with the G20’s recommendations on pay, which would force banks to pay a greater proportion of bonuses in shares, defer payouts for longer and include a claw-back mechanism to enable banks to ensure there were no rewards for failure.
Alistair Darling, the Chancellor, yesterday urged the Basel Committee, which is developing new international banking standards, to speed up its efforts amid growing concern that the timetable for tougher new capital and liquidity rules was slipping. “Basel II [the old discredited bank regime] took ten years. We haven’t got ten years. We haven’t got two years,” he said.
The Chancellor said that any delay might reduce the appetite for the reforms that were needed: “The danger is we’ll lose our collective memory,” he said, adding that yesterday’s meeting with bankers had been constructive. Their attitude had been more co-operative than a few months ago.
The United States is expected to issue more details next week of President Obama’s plan to prevent banks conducting proprietary trading and to limit their size, ahead of the G7 finance ministers’ meeting in Canada.
Philipp Hildebrand, chairman of the Swiss central bank, said that the new rules had to be agreed “as quickly as possible” but the need for speed had to be balanced with the need to get the rules right. He added that there should be “long time lags for implementation” to prevent the banks’ need to build up capital from constraining credit.
Mr Hildebrand and Hector Sants, chief executive of the Financial Services Authority, attacked the banks for resisting fundamental regulatory reform, which they said was essential to restore public trust in the market system. Mr Sants said that it was not clear whether a majority of the industry had grasped the fact that radical reform was necessary: “If they get it, it’s not obvious.”
Mr Hildebrand said that the banking industry had to persuade the public that it had “changed its spots” and had to work with regulators. “We are jointly in a very serious fight to preserve a market-based financial system,” he told a Credit Suisse lunch at Davos.
Both regulators welcomed Mr Obama’s proposals last week to crack down on risk-taking by US banks, which they said could be incorporated into the global reforms being driven by the G20 group of leading countries.
Laura Tyson, a member of Mr Obama’s Economic Recovery Advisory Board, agreed with critics of the proposals. She admitted that there were insufficient details and said “a lot of people took them as a slap in the face of global co-ordination”.
The proposals were formulated by Paul Volcker, the former Federal Reserve chief who is chairman of the Economic Recovery Advisory Board. Ms Tyson said that she had not taken any part in the discussions.
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