We Must Clean Up Banking System, Gordon Brown Tells Us Financiers

Gordon Brown today told the cream of New York's financial community that they must change their ways if the world is to emerge unscathed from the global financial crisis.

At a breakfast meeting at New York's Plaza hotel, the prime minister offered strong support for Barack Obama, who expressed his frustration at bonuses being paid out to staff at bailed-out businesses at a White House press conference on Tuesday night.

"We have to clean up the banking system," the prime minister told financiers at a breakfast meeting hosted by the Wall Street Journal's managing editor, Robert Thomson.

"We must give people confidence that the principles that guide their daily lives are those that also guide the markets. I know people are angry at what they see in banking bonuses remuneration."

Brown was speaking in the Grand Ballroom at the Plaza Hotel to a packed breakfast meeting attended by former US secretary of state Henry Kissinger and leading Wall Street figures such as Magnus Bocker, the president of the Nasdaq OMX Group.

The prime minister is on the second day of his five-day tour ahead of the G20 summit he will chair in London next week. His first day, when he addressed the European parliament in Strasbourg on Tuesday, was overshadowed by a warning in London from the Bank of England governor, Mervyn King, that Britain could not afford another fiscal stimulus. Today is in danger of being dominated by events in the UK after the government failed to find a buyer for some of its debt, the first such failure in seven years.

The prime minister indicated mild unease with King today when he pointed out that the Bank of England governor had signed up to a communique at the recent meeting of G20 finance ministers which pledged to take whatever action was necessary in the downturn.

"What the issue is now is whether we are prepared, given what happens over the next few months, to do what is necessary to resume growth in the economy. If you put that question to Mervyn King he will say – as he said when he signed the G20 communique – that we have got be ready to take the action that is necessary to restore growth."

Britain and the US had hoped to use the G20 summit to pave the way for a further, globally coordinated, round of fiscal stimuli. Downing Street and the White House believe that measures taken at a national level can be trebled or quadrupled if coordinated internationally.

But Angela Merkel, the German chancellor who has introduced €82bn (£76bn) of fiscal stimulus in two waves, is resisting pressure for further action. Merkel says it is important to assess the impact of the current measures before acting again.

Brown indicated that he will be taking a cautious approach on further fiscal stimuli at next week's summit.

"In Britain we are doing it [stimulating the economy] in three ways. We're doing it by interest rates being incredibly low, we're doing it by our fiscal stimulus and we're doing it by what is probably not yet understood by the public as one of the most effective and quicker ways of getting activity moving in the economy – by quantitative easing.

"If you take these three changes that have happened over the last few months together that is where you look for results in the combination of these three.

"Nobody is suggesting that people come to the G20 meeting and put on the table the budget that they're going to have for the next year. What we are suggesting is that we have together to look at what we have done so far communitively – about $2.5tn of stimulus at a fiscal level – what's been the effect of the interest cuts, what's the effect of quantitative easing and then say what should happen next? I see consensus not a disagreement on that."

Brown rejected a suggestion from Robert Thomson, his host, that Europe and the US are divided. Thomson said the EU was keener on using the summit to introduce tougher regulation of financial markets, while the US is focused on fiscal stimuli.

Brown said: "I don't think there is a lack of consensus. On the fiscal side every country will have its own timing for announcing its fiscal and monetary decisions. Nobody is trying to upset that timing. But I think there is a determination in the European communique and in what President Obama said yesterday — the same thing: to do whatever it takes to make sure that we can restore the economy to growth.

"Some people have taken fiscal action. Some people have had two fiscal stimuli. Monetary action has been common around the world. Some authorities have still to discuss whether they go further down on interest rates.

"Quantitative easing has been the new decisions of the last few weeks. It is the combination of all these initiatives that make the difference. You will see in the communique a determination to do what is necessary and to monitor what is happening."