Bankers must accept tighter regulation

Bankers must resign themselves to tighter regulation after the global financial crisis, officials said yesterday at the end of the World Economic Forum dominated by a bitter banking battle.

Finance sector reform is essential as recovery remains fragile after the worst global slowdown for decades, even if there is positive news notably in Asia, said delegates at the annual blue-chip summit in Davos.

The banking bust-up again took centre stage on the last day, with central bank chiefs huddling with finance ministers and officials and top private bankers in the Swiss ski resort.

The meeting brought together British and French finance ministers Alistair Darling and Christine Lagarde, European Central Bank chief Jean-Claude Trichet and the heads of top private banks.

"There's going to be regulation, they (the bankers) understand that," said US Congressman Barney Frank, one of the few willing to talk after the closed-doors meeting.

Asked if the bankers present accepted the need for greater regulation, he said: "Frankly it doesn't make any difference whether they did or not. They aren't in charge of this. The political leadership certainly in the US is going to go ahead with tough, sensible regulation," he added. Adair Turner, head of Britain's Financial Services Authority (FSA), said:"It was an entirely cooperative meeting with... the understanding that there are very important issues to which there needs to be input."

The banking issue has clouded the four-day Davos meeting, starting with French President Nicolas Sarkozy's opening address in which he backed US President Barack Obama's tough clampdown plans.

At the same time, there has been cautious optimism about the outlook for global recovery after the near-meltdown of the last 18 months.

Chinese and Indian delegates have trumpeted their country's healthy growth rates of nearly nine and seven per cent respectively, and the US hailed last Friday's unexpectedly-rosy 5.7 per cent GDP growth figure.

But unemployment remains a worrying problem in the US and Europe, which both have a jobless rate of some 10 per cent, despite a return to overall growth.

"What we're seeing in the US is a statistical recovery and a human recession," said Larry Summers, President Barack Obama's chief economic advisor, commenting on the jobless recovery phenomenon.

"The situation is better, but fragile," echoed International Monetary Fund (IMF) chief Dominique Strauss-Kahn.

Warnings of a double-dip recession - where nascent recovery fades back into a new slowdown - have abounded in Davos as leaders mull exit strategies from huge stimulus packages agreed to prevent a full-blown Depression last year.

France's Economy Minister Lagarde said she followed a "three Rs" principle - recovery, reform and restoring public finances.

But she said timing was crucial.

"Balancing between the recovery process that has to continue, the reform that needs to be maintained and the restoring of public finances is a tough line to draw," she said.

A top Chinese banker meanwhile said that Beijing could move on the sensitive issue of its currency's exchange rate once other countries start to withdraw their stimulus packages.

China has been under fire for keeping the Yuan weak against the dollar, a strategy which critics say is aimed at keeping Chinese exports competitive.