G7 members seeking repayment from bailed-out banks
Finance ministers from seven leading economies have been holding talks in London on the reform of the global financial system as they look to recoup money used to bail them out.
President Barack Obama's proposal on limiting the size and scope of banks set the tone for the discussion, and the G7 leaders are looking to follow suit.
In fact, they want the money back. Having shelled out a king's ransom to prop up the banking system during the crisis, the G7 ministers are now considering imposing new taxes on the banks that enjoyed government help.
Pavel Pikulev, an analyst at Trust Bank, believes these measures are most important over the long term.
“Whether these clearly populist measures will be effective in preventing future crises is not very obvious,” Pikulev said. “Also, this question is more important in the long run. Banks in different countries, especially in the US, find themselves in a very dubious position.”
Obama has called for the repayment of all funds spent on supporting banks. The US president also wants to limit the size of banks and the scope of their trading activities.
However, Sergey Dubinin, head of the Central Bank from 1995 to 1998 and a current board member at VTB Capital, believes that Obama faces an uphill battle.
“This will take the entire presidency of Mr. Obama,” Dubinin said. “I hope it will be a victory for Obama and his team.”
For Obama's plan to ensure the stability of the world's financial system, all the major economies would need to impose similar conditions. Europe, however, is intent on a different set of rules, while Russia is undertaking banking reform according to its own needs.
And this lack of coordination is liable to create loopholes for the banks to exploit.