With a global economic recovery under way, Abominable Snowman Inflatable the financial elite will not be in hiding as they were last year, when only a comparative handful showed up in Davos, Switzerland, for the annual World Economic Forum. But they will still be on the defensive. The prospects of tighter regulation, which seemed to be fading only a few months ago, look more likely than ever before.
Amid popular outrage about soaring profits and bonuses, political leaders and economic policy makers seem intent on making progress toward some kind of global rule book that would prevent another bank-led meltdown of the financial system.
“We cannot afford to have a financial system which is as fragile in the future as it has proved to be in the past,” the European Central Bank president, Jean-Claude Trichet, said this month.
The world’s top bankers will arrive in Davos just as the political mood in Washington and other capitals is turning against the financial industry again. Last week, President Barack Obama called for laws to keep financial institutions from becoming too big, as well as restrictions on risky practices that include betting bank capital on securities markets.
In Europe, leaders are also responding to voter frustration at having to pay for bank bailouts even as unemployment continues to rise.
The governor of the Bank of England, Mervyn King, has raised the prospect of breaking up the big financial institutions in the country. Britain and France plan to tax banker bonuses, while European Union officials are working on a regional bank regulation agency.
Some bankers say they support new rules, at least in principle. The chief executive of Deutsche Bank, Josef Ackermann, a co-chairman of the World Economic Forum, said in a video posted to YouTube that he favored new regulations on the amount of capital banks were required to hold, as well as better mechanisms for winding down sick institutions.
But there is also widespread suspicion that bankers are hoping, now that the risk of a collapse of the financial system has retreated, to return to business as usual.
“In the midst of the crisis there was a certain willingness among banks” to accept restrictions, said Erik Berglöf, chief economist of the European Bank for Reconstruction and Development, which was involved in preventing a financial meltdown in Eastern Europe. “Now what I see is a certain forgetfulness of what happened in the crisis.”
Expectations are high among participants that Davos could contribute to the global debate. “I am more optimistic now than I have been in recent months,” said Barry Eichengreen, a professor of economics and political science at the University of California, Berkeley, who will moderate a panel on financial regulation featuring Mr. Trichet. “I had become more and more worried that the window of opportunity to do something significant was closing.”
But while everyone is agreed on the need for a sturdier global financial system, the tough part will be creating uniform standards that apply around the world. Inconsistency would encourage “regulatory arbitrage” in which big banks set up operations wherever local rules are most comfortable, Mr. Eichengreen and others said.
The United Nations Climate Change Conference in Copenhagen last month, widely regarded as a failure, left some Davos attendees skeptical that countries could agree on a common course when it comes to financial regulation.
“The decision-making process stinks,” said Ben Verwaayen, chief executive of the telecommunications equipment maker Alcatel-Lucent and a Davos participant. “You see national governments taking action depending on what’s happening in their national theaters.”
The World Economic Forum, which runs from Wednesday through Sunday, will have several high-level panels on an overhaul of the financial system, which should help keep the issue on the public agenda. There will also be a series of private meetings of government representatives and bank chiefs, who will meet separately in Davos and then together.
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