Banking under scrutiny as world leaders move further towards sweeping reforms

Written by Ray Clancy

Friday, 21 May 2010 09:39

Banking regulation is high on the political agenda around the world as leaders in Europe battle to reform an industry they blame for the global recession and also deal with issues within their home countries.

And in the US the senators have passed a bill that contains the most sweeping reforms to America’s system of financial regulation, since the 1930s. The new legislation tackles the failings that have been blamed for the credit crisis, from predatory lenders to the derivatives market and banks that are too big to fail.

But it has already been criticised by the banking industry. .Many of these negative provisions have nothing to do with the financial crisis. Despite all the talk about this being a Wall Street bill, it, in fact, does tremendous harm to traditional banks on Main Street that had nothing to do with the crisis and that will now be less able to support the economy. This bill promised much-needed reform but has gone terribly wrong,’ said Edward Yingling, chief executive of the American Bankers Association.

Today British prime minister David Cameron meets German leader Angela Merkel where banking regulation is expected to be top of the discussion list. Last night he met French president Nicolas Sarkozy and both men pledged to act on financial reform.

Both Sarkozy and France’s budget minister Francois Baroin have publicly declared that the Euro is not in danger despite claims by Merkel earlier in the week that it is.

This morning Baroin declared; ‘We will save the single currency at all costs because it represents our common good, because it is our economic tool. The Euro is not in danger because there is this very strong determination on the part of euro zone members to defend it’.

And last night at a joint press conference in Paris with Cameron, Sarkozy repeated several times that the Euro was a success and said people should take a more measured view of recent market turmoil, sparked by fears of a possible Greek debt default, that has seen the Euro fall sharply against the dollar.

‘There has been a lot of feverishness (in the markets) for some time now and us heads of state and government have to respond to this feverishness with sang froid,’ Sarkozy said.

He tried to play down suggestion of a rift with Germany over the handling of the debt crisis. France was stunned earlier this week when Germany unilaterally introduced a ban on speculative short-selling of securities, with senior officials in Paris openly criticising Berlin for failing to coordinate such a sensitive move.

But Sarkozy denied that the two countries were at odds over how to respond to the Euro zone debt crisis, adding that he was in almost daily contact with Merkel. ‘I told Angela Merkel that there cannot be disagreements between France and Germany on subjects of this importance. In terms of our relations with Angela Merkel, we’re doing everything to ensure that they are in harmony, that they are complementary, that they are full and that they show a common ambition,’ Sarkozy said.

At the press conference Cameron affirmed that the British and French would work together to ensure financial stability in the future. ‘One of the areas in which the president and me have very much a shared agenda is making sure that at the forthcoming G8 and G20 we really look at reform of our banking system,’ he said.

Cameron and Sarkozy are both backing a banking levy to take back funds from banks which returned to profit only after public bail-outs.