The World’s leading banking and finance executives, industry regulators, and billionaire investors like Warren Buffet and George Soros – the Wall Street crowd writ large – will head to the annual World Economic Forum held in Davos, Switzerland this week. This little mid-winter get-away traditionally coincides with the banking sector’s year-end bonus season and their requisite winter ski vacation. This comes just days after US President Barack Obama unveiled plans for the most stringent rules on financial institutions in decades as he seeks to prevent a repeat of the global financial crisis that prompted costly government bailouts of banks. President Obama is expected to repeat his newly aggressive stance toward the financial industry in a populist message in his annual State of the Union address on Wednesday.
Over 2,500 leaders from more than 90 nations representing business, finance, government and philanthropy will address pressing global issues in discussion format, often followed by Q&A from the audience. According to a number of sources, industry executives are planning to use the Swiss ski resort’s annual global economics jamboree to surreptitiously lobby against President Obama’s reinvigorated restrictions on casino-like proprietary trading, mergers, and too big to fail financial institutions who’s operations benefit from FDIC (i.e., taxpayer insured) protection or federal bailout funds (e.g., TARP). In my opinion, this unintended role by the government prompted by taxpayer funded bailouts establishes both a legal, as well as a legitimate public role as an equity shareholder in the sector, and as such a say in how the banks ought to be governed. Interestingly, many financial quarters in the Euro zone have emrbaced President Obama’s firmer stance and have been calling on their regulators to follow suit. Read more on that here.
And based on various reports I have read, bank chiefs braving the media spotlight at the glitzy Davos summit – who will include Citigroup‘s Vikram Pandit, JP Morgan Chase’s Jamie Dimon, among others – will make their own case to regulators while also networking with well-heeled clients and C-suite colleagues. Their focus will largely be on Obama’s proposals for stopping banks from taking risky bets with their own capital to make money on the financial markets – a practice known as “proprietary trading.” According to a report in this morning’s Financial Times, some senior bankers will argue that banks’ proprietary activity was not a key source of the credit crisis – and so should not be stamped out.
The Davos summit is also likely to be used by international regulators to try to forge a common front. A crucial plank in the strategy of the global financial lobby will be to shift the debate, as well as shifting the the burdens resulting from the financial meltdown, to regulators and international bodies such as the G-20 or Basel committees, and to argue that regulators need to take a more coordinated approach to curbing systemic risk.
Some senior private equity and hedge fund managers will argue that banks’ proprietary activity was not a key source of the credit crisis – and so should not be stamped out. They will also argue vociferously against the idea of breaking up so-called ‘too big to fail’ financial institutions. By contrast, many notable voices in the debate, myself included, have argued that institution that are considered too big to fail are, in fact, too big to exist by the sheer threat and risk that they pose to the global financial architecture. Read more on that here.
Source: FT.com, HuffPo.com, The Guardian (UK) Photo: WEC.org
