Bank reform

Britain's financial services secretary, Paul Myners, stated Monday the country will push for global banking reform, but Germany and the European Union have been slow to respond similarly.

Myners' announcement comes days after Barack Obama made public plans to regulate the scope of banks in the United States and force them to abandon hedge and private equity funds. Obama's statements caused a plunge in stock markets worldwide.

British Prime Minister Gordon Brown has also pushed leading economies including the United States, Germany and France to consider a tax on financial transactions.

Myners told the Guardian newspaper Monday the United Kingdom's efforts to find "a new way to keep taxpayers from shouldering the bill for future bailouts will be far from easy."

"A global agreement on the issue would be the most important legacy of our response to this crisis, and it is a prize all governments have the duty to pursue," he said.

Britain's Finance Minister Alistair Darling said Sunday he is skeptical of Obama's proposed bank reforms. They would not have prevented the financial crisis and could undermine global consensus, he said.

Banks lack financial reserves

Dieter Hein, a banking analyst with the Frankfurt-area firm fairesearch, described the statements by Myner and Brown as populist sentiment which will have little long-term effect.

"For one thing, a special tax on banks will actually be counterproductive," he told Deutsche Welle, adding that banks currently borrow money from one another for lack of financial reserves. "When a large bank goes bankrupt, a domino-effect takes place. It's the Achilles heel of the global economy. What is actually necessary is for banks to build up a buffer against risks, which means more capital reserves are necessary."

Hein pointed out roughly half of Germany's banking is done in banks governed by public law rather than privately financed ones. Those public banks were hit harder than private ones during the recession, he said.

"Some of the most heavily afflicted financial institutions in Germany were the federal state banks, which would have gone bankrupt without massive support from tax monies," he said. "They have a limited business model, can't generate the same profits as private banks and aren't competitive."

Obama plan praised and criticized

German and European Union officials have been reluctant to adopt Obama's approach despite praising it. However, the president of Germany's central bank, Axel Weber, on Thursday advocated a reformation of the nation's system of banking oversight to be completed by the beginning of next year.

And German Finance Minister Wolfgang Schaeuble said Sunday: "Something moving in the United States on this issue is a welcome development. It makes the chances of finding a common solution all the greater."

But the German financial industry has criticized Obama's plan.

Manfred Weber, executive of the Association of German Banks, told Reuters Friday that: "The stability of the financial system will not be improved by this, and that is the entire point."

Representatives from Deutsche Bank, Dresdner Bank and Commerzbank in Germany did not comment Monday.

Author: Gerhard Schneibel
Editor: Nancy Isenson