However, it is not easy to strengthen international financial cooperation and reform the global financial system.

Stephen Roach, chairman of Morgan Stanley Asia, told Xinhua that a multilateral financial entity needs teeth.

"The problem is that there is no enforcement mechanism, no penalties for bad behavior. Nobody wants to relinquish national authority."

In an era of globalization, only international financial cooperation and financial supervision can help establish a new and effective global financial system, which has been agreed upon by both advanced and emerging economies.

Last November's G20 Financial Summit in Washington hammered out a blueprint for the new global financial system. The London G20 Financial Summit in April is expected to work out details for realizing that goal.

Reform financial rules

Current financial rules must be "fundamentally revised" as they had deepened the global financial crisis, financial experts at the Davos forum said.

Rules such as capital adequacy regulations and fair value accounting were "well intentioned," but had proved to be inadequate, said Stephen Green, chairman of the HSBC Group.

"Fair value accounting has added considerable volatility to results, only part of which is economic, and the capital adequacy regime has hobbled many banks with spiraling capital requirements just when customers need them to be flexible with lending," he said.

These rules encourage banks to build up their capital instead of lending money to their customers, which is against the efforts taken by the governments.

So far, the U.S. and British governments have taken a series of fiscal and monetary policies to push banks to restore lending. Central banks in these countries have launched "quantitative easing" with an aim to increase money supply in the market.

The financial system must also be less leveraged, the experts said.

Improved risk management skills are required and there must be an end to the "go for broke" incentive systems, both for traders and for corporate chiefs, they said, adding that there should be limits on "wild" derivatives with better and safer capital requirements.

According to them, banks in the future should clarify their business and be put under strict supervision.

Alessandro Profumo, chief executive officer of Italy's UniCredit Group, believes that banks in the future would specialize either in commercial activities such as deposit-taking and lending or in investment activities such as operating proprietary trading desks and underwriting derivatives, not both.

(Xinhua News Agency February 2, 2009)