Bankerspeak: behind-the-scenes chatter at the recent International Monetary Conference. (Letter From Berlin).
For those who are not familiar with the IMC, it was established as an international arm of the American Bankers Association in the early 1950s to act as host for a conference of the principal officials of the large American and foreign banks. Its spiritual director was Herbert V. Prochnow, Chicago's banking legend. For decades the chief executives of the world's hundred largest banks from the private sector could use the IMC to get acquainted, exchange views with their peers, and listen to central bank governors and other financial officials.
This year's IMC meeting at the Hotel Adlon in Berlin--under the presidency of Jacob Wallenberg, chairman of the board of Sweden's SEB--says a lot about the dramatic changes and upheavals in the world of global banking. To use the time of the top executives in global banking most efficiently, the IMC was followed, on June 4-5, by the spring meeting of the IMC's sister organization, the Institute of International Finance (IIF), at the same location.
Created in 1983 in response to the international debt crisis, the IIF prides itself on being "the world's only global association of financial institutions" according to Charles H. Dallara, its managing director since 1993. "The IIF has evolved to meet the changing needs of the financial community, and its members include most of world's largest commercial banks and investment banks, as well as a growing number of insurance companies and investment management firms, in all 320 members headquartered in more than 60 countries."
What Dallara, the former assistant secretary of the U.S. Treasury, doesn't say: their rival, the half-century-old IMC, has lost much of its international relevance because most major financial institutions of the world have put their eggs into the IIF basket. This way the IIF has become the most powerful lobbying platform to protect the business interests of the "global players" in a world of evermore expanding private capital flows.
Looking at the Berlin meetings of the IMC and IIF, the turmoil in global finance over the recent decades has left its mark.
First, due to mergers and the integration of commercial and investment banking, many of the big names in global banking are gone. In a move of self-preservation, the IMC opened its doors to a broad range of financial institutions. Chairmen and presidents of investment firms, insurance companies, and other financial conglomerates are stabilizing the IMC's membership. Now, about eighty banks and other financial institutions keep the IMC afloat. Some of the top bankers, such as Lloyds TSB Group's Maarten van den Bergh, propose merging both banker's clubs for reasons of efficiency.
Second, as the "big players" in global finance built up the IIF as their main international research and lobbying platform, they opted for a new division of labor: They use the IMC's seclusive annual meeting for the CEOs--accompanied by their spouses--to meet socially in the setting of a closed conference where they can mingle with top central bankers, supervisors, and other high finance officials. They let the IIF--with a much broader membership--do the global research, coordination, and lobby work. Top bank leaders such as Sir John Bond, the outgoing Group Chairman of HSBC, and Josef Ackermann, chief executive of Deutsche Bank, are calling the shots at both powerful banking clubs. At the Berlin meeting, Deutsche Bank head Ackermann took over the chairmanship of the IIF from--you guessed--HSBC boss Sir John Bond.
Third, this explains why the IMC board kicked out the small financial press contingent that over decades has been attending the annual meetings in all parts of the world. That happened two years ago, at the Ritz Carlton in Singapore, under the presidency of Douglas A. Warner III, then chairman of the board of J.P. Morgan Chase & Co., who made millions by merging his bank. The exception under the new rule: The press is allowed to attend the central bank governors panel.
With Michel Pebereau, BNP Paribas chairman and chief executive, as the new IMC president, next year's IMC meeting is scheduled for early June in London.
In Berlin, IIF's Dallara and the 450 senior executives from banks across the world had good cause to celebrate a major lobbying victory to protect their commercial interests in global markets. Through the IIF, the "big players" stood up against the International Monetary Fund and most G7 governments and central banks. With the IIF in front, the major financial associations of the private sector suckeeded in blocking IMF plans for a statutory Sovereign Debt Restructuring Mechanism (SDRM) at the Spring IMF/World Bank meeting. The G7 finance ministers and central bankers had endorsed the plan to put some statutory order into sovereign bankruptcy situations a la Argentina.
By sinking the SDRM, the world's top banks succeeded in preserving their options for expanded private-sector involvement in financial crisis prevention and crisis resolution by putting more and more collective action clauses in bond contracts and by pushing for voluntary best practices standards on global financial markets. Earlier, the IIF was at the center of coordinating the input of the major financial institutions in reforming the new capital rules under Basel II and other major steps toward modernizing the international financial architecture.
"We are encouraged by the growing support for the market-based approach to crisis management that the IIF has advocated for some time," said Ackermann. "The spread of collective action clauses in the marketplace and the development of a code of conduct for emerging markets finance are our current priorities."
To prepare the new code of conduct, Dallara and company have engaged Jacques de Larosiere, a former IMF managing director and former president of the Bank of France and European Bank for Reconstruction and Development, who in spite of his 74 years will be a big help to the self-regulation efforts of the major global banks.
Finally, a word on the present predicament of the German host banks. For the two Berlin bankers' meetings, outgoing IMC President Jacob Wallenberg came to Berlin with a note of comfort: When Sweden's private banks hosted the IMC in 1993, they handed out a public relations booklet under the title, "The Bad Bank Approach"--an explanation of how to turn a bad bank into a good bank with the aid of the Swedish Bank Support Agency. "At that time Sweden's banks had no equity and were kept alive by the government. Look at Sweden's banks of today. What goes down has to go up."
Klaus C. Engelen is the international correspondent for Handelsblatt in Dusseldorf, Germany, and a TIE contributing editor.
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|Author:||Engelen, Klaus C.|
|Publication:||The International Economy|
|Date:||Jun 22, 2003|
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