DAVOS, Switzerland — Confronting bankers head on, President Barack Obama's top economic adviser told them Friday to put their customers first and insisted the U.S. government would push through new banking reforms despite pressure from lobbyists.
"Our challenge now is to put in place a new system," said Lawrence H. Summers, telling a crowd at the World Economic Forum that the reforms wouldn't last forever but should be able to protect a generation from banking excesses.
Summers, the top U.S. official in Davos this year, said there needed to be rules restraining how risky these banks can become. His session came after three days of complaints from senior officials in the banking industry that governments – and the U.S., in particular – risked choking off growth with a glut of new financial regulations.
The level of anxiety among financiers at the new populist push was reflected in a series of closed-door meetings at Davos on the subject of the regulation proposals, and bankers and financial regulators were expected to meet again Saturday on the forum's sidelines to discuss a range of issues, officials said.
Summers was adamant that "we are going to put in place a set of reforms that will make a real difference."
He said banks should be aware of their obligations to their communities in making lending decisions and to contain risk, especially when they benefit from taxpayer support after getting into trouble. He also questioned the bank's "paying out bonuses in large quantities."
The impact of government support for the banks has been far-reaching, he said. "Half a trillion dollars of market value exists today that would not have existed" if the government hadn't acted.
He said Obama's proposed banking fees did not stem from populist pressure for revenge.
"Our focus is not on trying to pick a fight with anyone but getting the economy rolling again," he said.
Summers didn't appear to engage his audience of business leaders at their annual gathering in the Swiss Alps, and looked more like he was talking to American voters at home.
He lamented the current situation in Washington where there are three banking lobbyists per member of Congress, saying it raises questions when some of them are even pushing for financial institutions to be able to jack up credit card rates without letting customers know.
Banks must accept new constraints on their activities, he said.
"They need to think very carefully about their obligations to their customers," Summers said.
He also welcomed the latest figures showing strong economic growth in the U.S., but said now is not the time to celebrate.
The 5.7 percent increase in fourth-quarter growth that came under Obama's economic policies has helped "moved the economy back from the brink of depression," but the figure does not mean that "we are in any position to pop any champagne corks" or be satisfied.
Joaquin Almunia, EU competition commissioner, supported Summers.
"I fully agree with the objectives and with the way he has explained the need for financial regulations to avoid the imbalances and the accumulations of risk that brought about this crisis," he said.
Summers' session was generally well received, though there were a number of empty seats in the crowd as some top executives left after the preceding debate featuring Google CEO Eric Schmidt.
Summers tone "makes a businessman more comfortable," said Francisco Rubiralta, CEO of Spanish steel company Celsa.
Manuel Teehankee, a Philippine trade envoy, said Summers may have helped ease business tensions even as the U.S. seemed to be proposing something akin to the Depression-era Glass-Steagall Act, which separated commercial from investment banking in a bid to limit speculation. Most of the Glass-Steagall restrictions were repealed by Congress and President Bill Clinton in 1999.
"I think it calms the general public, and the middle class that the lobby, or the Davos elite, won't stem the tide of financial reform," Teehankee said. "He's making clear Washington's commitment to substantial financial reform, in a reasonable way."
Associated Press reporter Bradley S. Klapper contributed to this report.
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