G20 takes ranging shot at 'too big to fail' banks
It’s not the brain, it’s the muscle. Leaders from the Group of 20 countries aren’t coming up with bright new ideas on how to prevent a repeat of the past two years.
But recent comments by Europe’s big three - Angela Merkel, Nicolas Sarkozy and Gordon Brown - suggest that the summer lull isn’t going to let bankers off the hook.
Most ideas on reining in the banking system have long been debated among treasury officials and central bankers. What’s encouraging is that political momentum is clearly growing in the run-up to the next G20 summit in Pittsburgh at the end of the month.
Brown has just added his voice to the Franco-German choir asking for a clampdown on traders’ compensation. In this area the principles were already agreed at the previous G20 summit in April, so it's mostly a matter of implementation.
More important, world leaders are rightly starting to focus on the “too big to fail” issue, which didn’t figure in the last round of talks. The German government - no doubt stimulated by its upcoming general elections, which will take place a few days after the Pittsburgh summit - is taking the lead. It is asking for reforms to ensure that banks will never again be allowed to feel that their size gives them immunity, ultimately billing taxpayers for their blunders.
There is not yet a final blueprint about how to deal with the “too big to fail” problem. But the Germans are pushing an idea for a coordinated reform of global insolvency laws so that large international banks could be unwound in a controlled way. That would avoid another Lehman Brothers-style dilemma - where policy makers were faced with the unappetising choice between letting the bank go bust and create global havoc or bailing it out.
The important thing is that the world’s leaders should signal they are keeping their eye on the ultimate goal of preventing a repetition of the crisis and not listening to the sirens of banking who would like them to believe that everything is getting back to normal.
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