Seconds Out: The Great Banking Fightback

Barclays and JPMorgan are leading a counter-attack against banker-bashing. Sean Farrell and Stephen Foley report

This week saw the latest instalment of the banks' fightback on both sides of the Atlantic. In the UK, Bob Diamond put on a defiant show at the Treasury Select Committee.

There was no implicit taxpayer subsidy of investment banking and ring-fencing retail banking was not a good idea, Barclays' chief executive told MPs.

Mr Diamond said any state backing was "an implied government guarantee" and that ring-fencing of retail deposits "wouldn't be my first choice... or best alternative, but there is a way to make it work".

In doing so, he rejected arguments of the Independent Commission on Banking (ICB), which is due to submit a final report in September.

Meanwhile in the US, Jamie Dimon, the chief executive of JPMorgan Chase, took the extraordinary step of challenging the chairman of the Federal Reserve in public over the effects of regulation on banks' lending.

"I have a great fear someone's going to try to write a book in 20 years and the book is going to talk about all the things we did in the middle of the crisis to actually slow down recovery," Mr Dimon told Ben Bernanke at a conference in Atlanta.

Mr Diamond and Mr Dimon have been the most forceful bankers in resisting efforts to rein the banks in. Neither Barclays nor JPMorgan took direct government investment to bail them out in the crisis and this appears to have emboldened them to tell politicians once again how the world works.

In the UK, the turning point appears to have come in the second half of last year.

Under its then-chief executive, John Varley, Barclays launched Project Merlin – a lobbying effort to draw a line under political bank-bashing in return for concessions on pay and lending to support the economy.

As talks on Merlin progressed in January, Mr Diamond, by now in charge at Barclays, delivered his famous remarks to the Treasury Committee.

"I think they [government ministers] recognise that there was a period of remorse and apology for banks. I think that period needs to be over; we need our banks willing to take risks, confident, and working with the private sector in the UK so that we can create jobs and we can improve the economic growth."

So there you had it. Banks had taken their medicine but it was time to get off their backs and let them get on with things. If not, the economy would suffer from lack of credit.

At about the same time, Mr Dimon had had enough, too. At Davos, he launched a scalding attack on politicians, the media and ordinary people who have been bashing bankers ever since the credit crisis.

"I don't lump all media together," he said. "There's good and there's bad. There's irresponsible and ignorant and there's really smart media. Well, not all bankers are the same. I just think this constant refrain "bankers, bankers, bankers" – it's just a really unproductive and unfair way of treating people."

At the time, his outburst was portrayed as little more than petulance, but a few months later, it is clear Mr Dimon is playing a much more sophisticated public-relations game to change the terms of debate.

Like Mr Diamond, he has argued that all bankers have been tarred unfairly, that giant banks such as his eased the credit crisis, and that regulations imposed on the industry since then unjustifiably crimp banks' profits and ability to lend.

His vociferousness has emboldened others. In Washington, the lobbying capital of the world, the banks have pushed hard for exemptions to rules tightening trading of derivatives contracts and others that force them to hold on to some of the securities created from their loans to keep lending standards high.

Now, lobbyists are arguing against a key plank of the post-crisis consensus, namely that systemically important banks should be forced to hold proportionally more capital than smaller banks, whose demise would have less of an impact.

Sheila Bair, chairman of the Federal Deposit Insurance Corporation, was so concerned about the push-back that she warned of "amnesia" setting in about the credit crisis.

The arguments of Mr Diamond and Mr Varley illustrate the apparent dilemma for politicians and their regulators. The banks may have been to blame for the crisis but if tough constraints are imposed, they cannot lend to businesses to get the economy going.

There is also a more explicit threat that affects the UK. HSBC, Standard Chartered and Barclays have let it be known they could withdraw from Britain, in part or completely, if regulations are too onerous.

Jonathan Herbst, a partner at the law firm Norton Rose, says: "There is a tension between the political need to be tough on the banks, especially within the Coalition, and the growing realisation that they are enormous employers and that the threats about them not expanding in the UK – or even leaving – are not idle.

"On the one hand, you have relatively soft lobbying by the City Corporation and individual banks and it's very much trying to influence the debate, and that's a difficult argument to win because of the politics. On the other hand, there are much harder comments about leaving the UK and that type of thing. Some banks veer more towards one and others towards the other and in some ways policymakers don't know what to make of it."

The Treasury Committee hearings exposed divisions between the banks on ring-fencing and lending to small businesses that could allow UK politicians to regain the upper hand. But for now, the fightback continues on both sides of the Atlantic.

Lord Oakeshott, the former Liberal Democrat Treasury spokesman in the Lords and a fierce critic of the banks, says: "They did a very effective job with Project Merlin, pulling the wool over the eyes of the Treasury and No 10, but it's now falling apart because the banks still aren't lending and the bonuses roll on."

Start your day with The Independent, sign up for daily news emails
Arts and Entertainment
Lou Reed distorted the truth about his upbringing, and since his death in 2013, biographers and memoirists have added to the myths
musicThe truth about Lou Reed's upbringing beyond the biographers' and memoirists' myths
Ed Miliband received a warm welcome in Chester
election 2015
Life and Style
Apple CEO Tim Cook announces the Apple Watch during an Apple special even
fashionIs the Apple Watch for you? Well, it depends if you want it for the fitness tech, or for the style
ebooksA special investigation by Andy McSmith
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £45,000: SThree: SThree Group have been well e...

Ashdown Group: IT Manager / Development Manager - NW London - £58k + 15% bonus

£50000 - £667000 per annum + excellent benefits : Ashdown Group: IT Manager / ...

Recruitment Genius: Sales Consultant / Telemarketer - OTE £20,000

£13000 - £20000 per annum: Recruitment Genius: Scotland's leading life insuran...

Ashdown Group: Training Programme Manager - City, London

£40000 - £45000 per annum + benefits : Ashdown Group: Training Programme Manag...

Day In a Page

NHS struggling to monitor the safety and efficacy of its services outsourced to private providers

Who's monitoring the outsourced NHS services?

A report finds that private firms are not being properly assessed for their quality of care
Zac Goldsmith: 'I'll trigger a by-election over Heathrow'

Zac Goldsmith: 'I'll trigger a by-election over Heathrow'

The Tory MP said he did not want to stand again unless his party's manifesto ruled out a third runway. But he's doing so. Watch this space
How do Greek voters feel about Syriza's backtracking on its anti-austerity pledge?

How do Greeks feel about Syriza?

Five voters from different backgrounds tell us what they expect from Syriza's charismatic leader Alexis Tsipras
From Iraq to Libya and Syria: The wars that come back to haunt us

The wars that come back to haunt us

David Cameron should not escape blame for his role in conflicts that are still raging, argues Patrick Cockburn
Sam Baker and Lauren Laverne: Too busy to surf? Head to The Pool

Too busy to surf? Head to The Pool

A new website is trying to declutter the internet to help busy women. Holly Williams meets the founders
Heston Blumenthal to cook up a spice odyssey for British astronaut manning the International Space Station

UK's Major Tum to blast off on a spice odyssey

Nothing but the best for British astronaut as chef Heston Blumenthal cooks up his rations
John Harrison's 'longitude' clock sets new record - 300 years on

‘Longitude’ clock sets new record - 300 years on

Greenwich horologists celebrate as it keeps to within a second of real time over a 100-day test
Fears in the US of being outgunned in the vital propaganda wars by Russia, China - and even Isis - have prompted a rethink on overseas broadcasters

Let the propaganda wars begin - again

'Accurate, objective, comprehensive': that was Voice of America's creed, but now its masters want it to promote US policy, reports Rupert Cornwell
Why Japan's incredible long-distance runners will never win the London Marathon

Japan's incredible long-distance runners

Every year, Japanese long-distance runners post some of the world's fastest times – yet, come next weekend, not a single elite competitor from the country will be at the London Marathon
Why does Tom Drury remain the greatest writer you've never heard of?

Tom Drury: The quiet American

His debut was considered one of the finest novels of the past 50 years, and he is every bit the equal of his contemporaries, Jonathan Franzen, Dave Eggers and David Foster Wallace
You should judge a person by how they peel a potato

You should judge a person by how they peel a potato

Dave Hax's domestic tips are reminiscent of George Orwell's tea routine. The world might need revolution, but we like to sweat the small stuff, says DJ Taylor
Beige is back: The drab car colours of the 1970s are proving popular again

Beige to the future

Flares and flounce are back on catwalks but a revival in ’70s car paintjobs was a stack-heeled step too far – until now
Bill Granger recipes: Our chef's dishes highlight the delicate essence of fresh cheeses

Bill Granger cooks with fresh cheeses

More delicate on the palate, milder, fresh cheeses can also be kinder to the waistline
Aston Villa vs Liverpool: 'This FA Cup run has been wonderful,' says veteran Shay Given

Shay Given: 'This FA Cup run has been wonderful'

The Villa keeper has been overlooked for a long time and has unhappy memories of the national stadium – but he is savouring his chance to play at Wembley
Timeless drama of Championship race in league of its own - Michael Calvin

Michael Calvin's Last Word

Timeless drama of Championship race in league of its own