The world's leading bankers yesterday declared war on Barack Obama's plans to break up their institutions.
The president of Barclays, Bob Diamond, joined Joseph Ackerman, the chairman of Deutsche Bank, and Peter Sands, chief executive of Standard Chartered, in a chorus of opposition to the Obama administration's plans, based on ideas from the former Fed chairman Paul Volcker.
The US President, pictured, said last week that he was "up for a fight" with financial vested interests: yesterday in Davos they landed a few punches on him. Mr Diamond was the most outspoken, accusing the British and American governments of electioneering over bank regulation.
Within hours of the World Economic Forum opening its doors, the president of Barclays openly challenged President Obama's strategy and, by implication, Alistair Darling's efforts to tax bank bonuses. Mr Diamond, who received a £25m bonus before the credit crunch hit, accused the US administration and the British Government of being influenced by national elections and "domestic concerns", and abandoning the international approach previously being followed: "elections are by nature national not global."
It is assumed that he had the Treasury's levy on bank bonus payments in mind when he attacked the UK authorities. Mr Diamond said that "isolated actions" by the UK or US were "not beneficial" when compared with the "opportunity to work through the G20 and the Financial Stability Forum", the central bankers' group based in Basel. "I have seen no evidence... to suggest that shrinking banks and making banks smaller and narrower is the answer."
Mr Diamond cited his bank's business in US Treasury securities as one of the areas where it would be "very, very difficult" to determine that proprietary trading was in fact "unrelated to customer service", the phrase used by President Obama to define where he wanted to limit the big banks' activities.
Barclays, said Mr Diamond, was "immensely proud" that it had taken no direct money from any government, and defended his purchase of Lehman Brothers' New York operations as the acquisition of a "great organisation".
Mr Sands echoed the view. Asked if breaking up the banks was a good idea, he said: "The unambiguous answer is no... There is a risk of fragmentation of activities and we are seeing that already." Mr Ackermann added: "We need to have consistent global rules... fragmented banks will produce a dichotomy that would not work."
Lord Levene, for insurers at Lloyd's of London, told attendees that tougher regulation in the West might push businesses to new financial centres – such as Singapore, Shanghai and Zurich.
Defending Mr Obama, Barney Frank, the chairman of the powerful House Financial Services Committee, said that if London and Washington were united, regulatory arbitrage would be limited: "You can't play mommy and daddy against each other now."
The legendary financier Gorge Soros and the economist Nouriel Roubini also backed the President, urging other nations to follow suit. Even so, Mr Soros cautioned, "most investment banks would still be too big to fail".
Speaking at another event, the chairman of the Financial Services Authority, Lord Turner, gave only partial backing to the Obama package: "The crucial thing to understand about the American proposals is they are not actually suggesting an absolutely hard and fast new Glass-Steagall [enforced separation] which would prevent a bank being involved, for instance, in the underwriting or distribution or trading of credit securities.
"The crucial phrase is there should be limits to proprietary trading unrelated to customer service. I absolutely agree with that and the crucial question is how we operationalise that. There needs to be processes of market-making, but it needs to be in support of customer service."
For the first time, though, the FSA threw its support behind the President's attempts to prevent banks from running hedge funds or getting involved in private equity, moves that would affect Lloyds Banking Group, for example.
Lord Turner took the opportunity to call again for the Bank of England and the FSA to work together on a new "Macroprudential Policy Committee" which, he said, could meet twice a year and decide on which "macroprudential" levers to pull, such as altering banks' risk-related capital ratios. He said he would welcome the participation of external economists – "mavericks" – on such a committee to guard against group-think. Few believe such sensitive issues will be resolved before the next election.
Obama's plans: What the experts say
"I have seen no evidence that suggests that shrinking banks and making them smaller and more narrow is the issue"
Bob Diamond, President, Barclays Bank
"We could all be losers in the end if we don't have an efficient market in place any more"
Josef Ackermann, Chief executive, Deutsche Bank
"The idea banking is getting back to business as usual is a misunderstanding"
Peter Sands, Chief executive, Standard Chartered
"We have to get back to the idea of controls on credit growth"
Lord Turner, Chairman, FSA
"The financial supermarket model has been a disaster"
Nouriel Roubini, EconomistReuse content