Baroness Vadera, adviser to the G20, today warned the world's most senior bankers that Continental lenders have still to come clean about the magnitude of their losses and bad debts.

Lady Vadera, who was formerly a key adviser to Gordon Brown during the banking crisis, said: "It's not the UK banks that have to come clean, but some of the Continental banks still have issues."

She added that contrary to City assumptions, the supposedly hard line French and German governments are surprisingly more relaxed about leverage and liquidity constraints than Britain and America.

Lady Vadera’s comments emerged against a backdrop of City anger at France’s President Sarkozy who recently said the UK was the “big loser” from the appointment of Michel Barnier as Europe’s next Single Market Commissioner.

The French President said at the time, “Do you know what it means for me to see for the first time in 50 years a French European commissioner in charge of the internal market, including financial services, including the City [of London]?

"I want the world to see the victory of the European model, which has nothing to do with the excesses of financial capitalism."

Speaking at the Wall Street Journal's Future of Finance Initiative Conference, the former UBS banker also said that she still had nightmares about how close the British banking system came to collapse last year.

She also warned bankers that the G20 process was "like herding cats", and that one of the key problems with the group of the world's wealthiest nations was that they did not want to give up national sovereignty and co-ordinate their behaviour.

Her comments will come as a blow to governments who are banking on the G20 to act together in redrawing the financial regulatory map and agree to reduce massive imbalances across world capital markets.

G20 nations are currently trying to come to a consensus on global financial issues such as bankers' pay, capital reserves for lenders, and agreement on when to withdraw billions of dollars worth of fiscal stimulus packages propping up economies.

Lady Vadera played down the chances of China agreeing to appreciate the yuan any time soon, pointing out that it held two-thirds of its foreign currency reserves in US dollar securities.

"You are asking a country to wipe out the value of its reserves," she said.

While she said that the G20 had been "surprisingly successful", she sought to manage bankers' expectations of what the group of nations could achieve.

She explained that the G20 was "not a treaty, not the WTO [World Trade Organisation], not even a system of air traffic control" but pointed out that countries are applying peer pressure on one another as part of the negotiation process.

Earlier today, Sir Howard Davies, former chairman of the Financial Services Authority, called for the creation of a financial equivalent to the WTO to police the world banking system.

Sir Howard, who is now director of the London School of Economics, said the WTO had been created partly as a world authority to enforce trade rules. "Why is the same not true in finance?"

"Why in the finance sector do we not have something similar to the WTO?" he said.

Sir Howard, who helped set up the FSA, blasted the mechanism for creating and enforcing bank rules as slow and undisciplined.

"There was absolutely no accountability, there was no discipline in the system," he said of Basel II - the current internationally agreed regime for bank balance sheet rules, which he said took 12 years to come into existence.

He called on the G20 nations to endow the Financial Stability Board, the group of regulators and central bankers, with the same authority as the WTO.

Sir Howard also called on bankers to desist from what he called "the casual denigration" of regulators that characterised the pre-crunch era. There needed to be mutual respect, he said.

Sir Howard also called for new financial products to be vetted by regulators in future, conceding that it might slow innovation, but adding, "That doesn't bother me particularly".

He said regulators were capable of cherry picking, allowing good innovation while blocking the development of other products which turned out to be of questionable value - like CDO squared.

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