Can Davos find answers to banking goof-ups?

Anil Kumar Satapathy

Strange or mere coincidence, US President Barack Obama has recently called for a tectonic shift in the banking rules, sending markets all over the world into red -- exactly a year after the leaders in Davos World Economic Forum (WEF) called for a "global redesign initiative to reform banking, regulation and corporate governance”.

This year’s WEF will take place at Davos in Switzerland on January 27-31. In the Swiss mountain resort forum, the top of the agenda will be how to reform banking and finance to prevent “future crises”, and avert government default in countries burdened by recession and bailout costs.

The event, which will be opened by the French President Nicholas Sarkozy, will have speakers like South Korean President Lee Myung-bak, who heads the G-20 this year, and Canadian Prime Minister Stephen Harper, head of the G-7/G-8. However, Obama and British Prime Minister Gordon Brown will not be attending the forum.

A sneak peak into the history

WEF is an annual event at the alpine ski town of Davos. Every January, executives, world leaders, journalists and intellectuals gather in this Swiss village for five days to discuss pressing global challenges.

The forum’s credit goes to Klaus Schwab, a former professor at the University of Geneva. In January 1971, Schwab chaired a meeting of European businessmen to discuss how their firms could compete with their US counterparts.

It has since expanded from a private and business-focused meeting to a much wider and more significant event covering many political and social issues of the world. A historic turnaround came in 1987 when the group was rebranded as the World Economic Forum, and conflict resolution was added to its remit.

Rethink, Redesign, Rebuild

The official slogan for 40th anniversary of the Annual Meeting, “Rethink, Redesign, Rebuild”, has somewhat been pre-empted by Obama’s call for the banking reforms. Obama has laid out bold new curbs on banks` proprietary trading operations, other risky activities, and on financial firms` overall size.

There were contradictory opinions so far. While a few have agreed that downsizing of financial giants would prevent another economic crisis, others see the opposite. The talks are in the backdrop of severe recession which saw a mammoth $5 trillion fiscal and monetary stimulus by various governments around the world. However, over 2,500 leaders from more than 90 countries representing business, government, civil society, academia and culture will join together at Davos to discuss pressing economic issues.

Will it bear fruit?

“For five days, more than 2,000 business and political leaders discussed what some here called the ‘crisis of capitalism’. However, most discussions described the problems, not solutions,” said a BBC report after the end of 2009 WEF.

Many have earlier criticised the forum for its “ineffectiveness”. According to those critics, WEF, which grew from a small gathering of businessmen to a much larger parliament of global thinkers, is now a “toothless tiger” that can never bite, but make noises.

In 2009, the world leaders have asked nations to guard against protectionism, and promised to do their best for the Doha Round talks of the World Trade Organisation (WTO). But on the contrary, last year saw countries, battered by the global economic crisis, slapping anti-dumping duties against each other. The most prominent case was between the US and China. The Doha Round talks have reached nowhere as each country wants a better deal than the practically possible one.

Besides financial issues, climate change discussions also fell flat on WEF’s face. The talks on climate change in December`s summit in Copenhagen seem to have done more harm than good. The influential countries, led by the US and China, ganged up against the poor nations and imposed unreasonable conditions on others at Copenhagen.

WEF’s increased focus on issues like climate change has drew flak from some quarters. “The Forum is not a place for announcements, it is where they go to take the world`s temperature, before going home to make policy. Davos matters, but for intangible, nebulous reasons,” opined an editorial in The Telegraph.

It further quipped: “Many of the chief executives go to talk to their counterparts, meet bankers, attend a few sessions and, ultimately, to make their minds up about how they plan to run their companies that year. Others are there to do deals... Politicians go there to meet businessmen and women, to hold private meetings with their overseas counterparts and, simply, to be seen.”

Optimism Abound

However, this time the case might be little different. The global economy is slowly recovering from the worst recession in 70 years. All nations seem to have learnt a lesson that in this era of globalization, all economies are deeply inter-dependent. Moreover, Obama has set the tone for the year by reemphasising his plan to take on the Wall Street giants. Leaders from the UK and France are likely follow suit.

Representative of all big banks like Barclays, Citigroup, Goldman Sachs, Bank of America and Morgan Stanley are sending their top executives to the forum. It’s an important gesture considering that many of these banks avoided the last year’s forum.

This will also be a good opportunity for them to lobby with world leaders for a lesser restrictions. The world has witnessed how bad lending practices can wreck havoc. The sound banking and financial systems of China and India have only reaffirmed the same. Bankers and leaders could perhaps strike a middle-way deal that could make global financing industry less vulnerable while ensuring its natural expansion.