The opening day of the annual Davos economic summit has been dominated by warnings from senior bankers that President Barack Obama’s plans to restrict the size and activities of Wall Street banks would do more harm than good.
Bob Diamond, president of UK bank Barclays, warned that the US proposals to curtail large global banks would affect jobs, growth and world trade.
Speaking at the World Economic Forum, Mr Diamond said “large, integrated, universal banks” had been a response to the market forces in the post-communist world. Large international banks served an important role by transferring risk across borders, he said.
“They fulfilled an important function in helping governments and corporates to transfer risk, particularly across borders,” said Mr Diamond. “Did banks get big because they wanted to or were they following their clients, their customers and the markets? Was it for an economic purpose?”
A new era of “narrow” banks would be harmful, he said. “The impact on jobs, global trade and the global economy would be very negative,” he said.
Devising safeguards to prevent a future collapse of the global financial system has been the subject of the opening discussions at this year’s annual meeting, which is being attended by 2,500 delegates, including 30 heads of state and government, more than 12 central bank chiefs and 1,400 business executives.
Josef Ackermann, chairman of Deutsche Bank, and Peter Sands, chief executive of UK bank Standard Chartered, cautioned against different approaches to financial regulation in different countries, saying that it would lead to “regulatory arbitrage” and damage the global economy.
“The international community should try to resist that as long as possible,” said Mr Sands, chief executive of one of Britain’s Big Five banks, adding that it would increase cost and complexity with different regulatory systems across different countries.
“Will it help the recovery for big banks to be broken up? The unambiguous answer is no,” he said.
Dr Ackermann said that small players in the financial sector trying to meet the needs of global trade and production would create “a dichotomy” which would not benefit the global economy.
The focus should not just be on protecting individual banks or national banking systems, he said. “Consistent and global rules, and a level playing field is absolutely key for the global economy.”