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France president calls for stronger global banking regulations

[JURIST] French President Nicolas Sarkozy [official profile, in French; JURIST news archive] called Wednesday for strong banking regulations [speech, PDF; press release] to restore the "moral dimensions" of capitalism. Speaking at the World Economic Forum Annual Meeting [official website] in Davos, Switzerland, Sarkozy called the current financial malaise a "crisis of globalization." He promised to target trade imbalances [Times report] between the East and West and called for a new currency exchange system [FT report] to prevent monetary dumping, as well as writing new laws to curb banks from speculating [Independent report]. Sarkozy said:

The other question we can no longer avoid is that of the role banks must play in the economy. The banker's job is not to speculate, it is to analyse credit risk, assess the capacity of borrowers to repay their loans and finance growth of the economy. If financial capitalism went so wrong, it was, first and foremost, because many banks were no longer doing their job. Why take the risk of lending to entrepreneurs when it is so easy to earn money by speculating on the markets? Why lend only to those who can repay the loan when it is so easy to shift the risks off the balance sheet?

President Obama is right when he says that banks must be dissuaded from engaging in proprietary speculation or financing speculative funds. But this debate cannot be confined to a single country, whatever its weight in global finance. This debate must be settled within the G20.

Sarkozy also called for "invest[ing] massively in the technologies of the future that will drive the digital revolution and the ecological revolution."

The US has recently taken several steps toward financial reform. Earlier this month, US President Barack Obama proposed new banking rules [JURIST report] that he claims would stabilize the banking system and reduce the risk of future bank failures. The legislation would prohibit banks from owning, investing in, or sponsoring hedge funds, private equity funds, or proprietary trading funds for profit where the funds do not benefit the banks' customers. In December, the US House of Representatives approved a bill [JURIST report] that would create a consumer protection agency, strengthen financial oversight and prohibit certain types of predatory and abusive lending. The US House Financial Services Committee [official website] had approved a bill to create a consumer financial protection agency in October, after originally delaying [JURIST reports] it at the behest of financial industry leaders in July. The creation of the agency is a key step in achieving Obama's stated goal of tightening financial industry regulations. In June, the administration proposed a broad series of regulatory reforms [press release; JURIST report] aimed at restoring confidence in the US financial system.

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