Singh Aide Says Bush Summits May Just Produce `Lot of Noise'

By Cherian Thomas and Simon Kennedy

Oct. 21 (Bloomberg) -- World leaders may fail to revamp the global economy because of transatlantic differences over how to regulate banks, said Saumitra Chaudhuri, an economic adviser to Indian Prime Minister Manmohan Singh.

The risk is that a European drive for stiffer regulation and supervision for cross-border banks will run into opposition from the U.S., meaning the talks may yield ``nothing concrete except a lot of noise,'' said Chaudhuri in a telephone interview yesterday.

Leaders from rich and developing nations are planning to meet for a series of summits, U.S. President George W. Bush and his French counterpart, Nicolas Sarkozy, said after talks on Oct. 18. The first will be held in the U.S. in coming weeks and focus on ways to avoid a repeat of the financial crisis that's pushing the global economy to the brink of recession.

``The problem is the U.S. and Europe have completely different banking systems,'' said Chaudhuri. ``How can they think in terms of uniform regulatory norms because banking systems are very different.''

The U.S. hasn't committed itself to the broad terms of Europe's agenda. Ideas ``have been brought forward by individual countries,'' White House spokeswoman Dana Perino told reporters on Oct. 17. ``There are other countries that are going to have ideas as well.''

Sarkozy's Goal

Sarkozy said on Oct. 18 that leaders ``must reform capitalism so that the most efficient system ever created doesn't destroy its own foundations.'' British Prime Minister Gordon Brown has said each of the world's top 30 banks should be under the supervision of a panel of regulators from the countries where those institutions do business. Both leaders have pushed for the culture of the banking industry to change, demanding fewer bonuses and less reliance on high-risk trading.

Bush has been less sweeping, calling for a debate of ``good ideas from around the world.'' He cautioned after meeting with Sarkozy that ``it is essential we preserve the foundations of democratic capitalism.''

Any deal to rewire the international financial architecture would echo the 1944 Bretton Woods agreement that fixed exchange rates and created the International Monetary Fund and the World Bank. The European leaders are trying to capitalize after U.S. Treasury Secretary Henry Paulson followed Brown's lead in injecting money into loss-ridden banks in return for equity.

``Europe has a tremendous sense of angst that they suffered because of the U.S.,'' said Chaudhuri. He added that another obstacle to reform is that it's ``very difficult'' for heads of state to understand finance given that it's ``technically incomprehensible even for 99.99999 percent of people'' who work in the industry.

To contact the reporter on this story: Cherian Thomas in New Delhi at Cthomas1@bloomberg.net; Simon Kennedy in Paris at Skennedy4@bloomberg.net