Davos: Bankers Fighting Back

Business Week

Execs from Barclays and Deutsche Bank have used the pulpit of Davos to rail against proposed new bank rules, but politics obscures serious reform efforts

European Commissioner for Economic and Monetary Affairs Joachin Almuni, center, arrives for a bankers meeting at the World Economic Forum in Davos, Switzerland on Saturday Jan. 30, 2010. - AP Photo

And so the fightback begins. You might say it was cowardly of the world's top bankers to wait until they had ducked behind the security barriers at Davos to come out swinging against regulatory reform, but until now no one has been prepared to put their head above the parapet. Strength in numbers was the feeling at the World Economic Forum yesterday, with a string of senior bankers speaking out.

The likes of Barclays' (BCS) Bob Diamond and Deutsche Bank's (DB) Josef Ackermann have two separate gripes. They do not like the nature of the specific bank reforms that have been proposed – particularly Barack Obama's plans for breaking up "too large to fail" institutions – and they are also worried about regulatory arbitrage. With different countries in favour of different types of reform, the playing field is becoming uneven, they say – bad for the countries that the banks might leave in favour of softer jurisdictions and bad for the banks themselves, which have to cope with misaligned sets of rules springing up all over the place.

Steady on, chaps. We do not yet have a clear picture of how banking regulation will change in the light of the worst financial crisis in history (despite sniping in some quarters about kneejerk reactions). There have been one-off interventions, such as the UK's for-one-year-only windfall tax, but otherwise, the negotiations are continuing.

That there is not yet international agreement it is true. But away from the headline-grabbing announcements on breaking up the banks, serious work on capital adequacy and liquidity is being coordinated at an international level. A Tobin tax and an insurance levy are almost certain to be global endeavours, if they are to be introduced at all.

Inevitably, different countries will feel that the idiosyncrasies of their own banking industries requires additional individual reforms (though the US's radical suggestions are long on hyperbole and short on detail, at least for the time being). Banking regulation has always operated in this way. By and large, however, there is a clear roadmap for reform being drawn up by the Bank for International Settlements (BIS) in Basel.

If anything, the BIS's reaction has not been kneejerk enough. Earlier this month, the watchdog itself warned there were signs many banks were slipping back into the sort of aggressive risk-taking seen before the credit crunch. You might characterise that behaviour as making hay while the sun shines, ahead of an agreement on the shape of banking regulation going forward.

The bankers are entitled to contribute to the debate about how they are regulated. And there is always a danger, following a crisis, of over-reaction – to subject banks to too tight a straitjacket would be counter-productive for the global economy.

However, despite the whingeing breaking out at Davos, the response of policymakers to the financial crisis has so far been proportionate and considered. There has been widespread acceptance that the banking industry must be given time to adjust itself to a post-crisis world and that moving too quickly would be rash.

So much so, in fact, that there is a growing campaign for policymakers to be more radical in their thinking, often from some of the most unlikely sources. So you saw Mervyn King this week praise the US for being prepared to talk about radical reforms (though note that the Bank of England Governor didn't actually back Mr Obama's plans). And in Davos yesterday, George Soros described the banks standing in the way of reform as "tone deaf".

You can see Mr Soros's point. Davos was an obvious place for the banks to begin to come together to fight what they see as an attack on their prospects and profitability. Yet this year's World Economic Forum meeting is taking place right in the middle of the global banking industry's bonus season. The banks' complaints might just get a more sympathetic hearing were their staff not trousering whacking great windfalls once again.

From Davos: Nike and Partners Launch The GreenXchange

Business Week

I mentioned in an earlier post that Davos can be a catalyst for great ideas, and one example is the GreenXchange conceived by Nike. This morning Nike formally launched the Xchange at a CEO breakfast in Davos.

The venue was a conscripted hairdressing salon that was pressed into service by the Forum as a meeting space. We were like sardines. But the energy in the tiny room was high.

To recap: The Xchange is a Web-based marketplace where companies can collaborate and share intellectual property which can lead to new sustainability business models and innovation. Ten organizations have already signed on. The Xchange is the first step in a journey towards more sustainable innovation, and the more companies that get on board, the faster we’ll all make progress. More info can be found here.

In Wikinomics co-author Anthony Williams and I argued that we’re living in a world where new approaches to collaboration enable new business models that empower companies to create better value for consumers. We said companies need a portfolio of intellectual property – some that they own and protect, some that they license and some that they share. The Green Xchange is all about achieving that.

Nike began this morning’s announcement with a cool video that made it clear that sustainability is not an obligation, it’s an opportunity. Companies can choose to be ahead of the curve or behind the times. The goal is to create an innovation community. No one is “giving away” their intellectual property; the exchange includes a licensing protocol.

“Nike is today committing to placing more than 400 of our patents on GX for research, demonstrating our belief that the best way to stimulate sustainable innovation is through open innovation,” said Mark Parker, Nike president and CEO. “Our hope is this will unleash new innovation to help solve current obstacles to sustainability issues.”

Example: Possible cross-industry benefits of making available Nike’s Environmentally Preferred Rubber. Used in Nike footwear the rubber contains 96 percent fewer toxins than the original formulation. By licensing the technology on GX it could be used in other company’s footwear, or it could hypothetically be used by Mountain Equipment Co-op for bicycle inner tubes. In this way Mountain Equipment Co-op could bring a greener product to market more quickly and cheaply than it could on its own.

Parker explained that initially the company’s lawyers opposed the Xchange. They felt intellectual property was always meant to be kept under wraps and guarded. But they’ve all come around to see the value of the Xchange, not only to the environment, but also bring competitive advantage to the company. When Nike’s patents are put into the commons, any improvements made to the patents will be available to Nike.

Parker said universities are a great source of intellectual property. What is needed – and what the Xchange provides – is a standard protocol whereby IP can bust out from the university and be helpful more broadly to business and society.

John Wilbanks, VP for Science at Creative Commons, said “There is so much duplication of effort and wasted resources when it comes to sustainability. We need to make it easier for individuals, companies, academia, and researchers to collaborate and share best practices.”

This idea of a patent commons came up at another session. Currently the planet has many commons like the ocean, air and space. Much of the Web is in the commons. It’s time we added a new area: know-how related to sustainability.

Davos: Sarkozy Calls for Global Finance Regulations

NY Times

DAVOS, Switzerland — France wants to use its presidency of the Group of 20 next year to create a new international monetary system, President Nicolas Sarkozy said on Wednesday, adding that he believed the U.S. dollar should no longer be the primary reserve currency in the global economy.

In an expansive and lofty speech to the business and political leaders gathered here at the annual World Economic Forum, Mr. Sarkozy also called for a “revolution” in international regulation that would make labor, health and environmental standards as enforceable as trade rules.

Like Prime Minister Gordon Brown of Britain, he backed a tax on financial market transactions. But Mr. Sarkozy, pursuing his call for a more moral form of financial capitalism, suggested the proceeds be used to combat climate change and create a World Environment Organization as powerful as the World Trade Organization.

Mr. Sarkozy also took a hard line on bankers’ bonuses, insisting that lavish rewards should be denied to those destroying wealth and jobs.

But before an audience that contained many Americans and many Chinese, his comments on currencies arguably had the greatest resonance.

“We need a new Bretton Woods,” Mr. Sarkozy told a packed auditorium. “We can’t have on the one hand a multi-polar world and on the other a single reserve currency on a global level.”

In a thinly veiled reference to China keeping its currency at an undervalued level, he added: “We cannot on the one hand laud free markets and on the other tolerate monetary dumping.”

During its 2011 presidency of the Group of Eight — the leading Western industrial powers plus Russia — and the wider G-20, which also includes several important developing nations, France “will put the reform of the international monetary system on the agenda,” Mr. Sarkozy said.

Mr. Sarkozy also warned that the economic recovery currently underway remains vulnerable, urging central banks against withdrawing monetary stimulus measures too abruptly, saying it could prompt a collapse of the world economy.

"We must take care to prevent too abrupt a tightening,” he said.

The powerbrokers at Davos were not Mr. Sarkozy’s only audience. Six weeks ahead of regional elections in France, which are widely seen as at least a partial judgment on his presidency, the president has tried to reverse a decline in his approval rating, currently at a record low.

“It was an effective, quite populist speech,” said Timothy Garton Ash, a professor at Oxford University and political commentator who was in the audience. “As always at Davos, national leaders are at least half talking to their own audience.”

In 2008, when France held the presidency of the European Union for six months, Mr. Sarkozy proved a dynamic — if controversial — leader, first negotiating a ceasefire that halted the war in Georgia with Russia, and then bringing together European leaders to coordinate their response to the financial crisis.

As president of the G-20, he could repeat that performance, and even observers who find his style at times overbearing applaud his tenacity and energy.

“The dynamism of the chair,” Mr. Garton Ash said, “may bring some more substance to the G-20.”

Mr. Sarkozy was the first French president to give the keynote address at the Davos forum, and it afforded him the chance to pit well-paid bankers against ordinary citizens.

He reiterated themes that have resounded in recent days, starting with President Barack Obama, who proposed a tax on banks’ liabilities, and then went further, suggesting that their size should be limited.

The French president said he agreed with Mr. Obama, but stressed that all regulation concerning banks should be dealt with at an international level, coordinated by the G-20.

Calling the current crisis a “crisis of globalization itself,” he urged broad coordination of regulation and accounting rules.

“If competition is distorted by accounting rules that remain very different from one country to another, and one continent to another, market actors will find it normal to return to pre-crisis habits,” Mr. Sarkozy said. “How, in a competitive world, can we demand of European banks three times more capital to cover their risks in their activities and not ask the same of American and Asian banks?”

His aim was not, he stressed, to do away with capitalism itself but to tame financial markets. To this aim, a tax, he said, was now unavoidable.

“We can’t escape the debate about taxing speculation,” Mr. Sarkozy said. “Whether you want to rein in frenetic financial markets, finance development aid or associate poor countries to the fight against climate change, everything brings us back to the taxation of financial transactions.”