Barclays chief Antony Jenkins says regulators need to 'find a way to box in the animal spirits' of the markets. Photo: Chris Ratcliffe
Top bank executives are struggling to convince the world’s business elite in Davos the financial system is safer, more than five years since it fell into crisis.
In what has become a yearly sparring match between bankers and their critics, HSBC chairman Douglas Flint and Barclays chief executive Antony Jenkins, two of Britain’s top bankers, faced criticism from Paul Singer, the billionaire hedge-fund manager who runs New York-based Elliott Management and Stanford University professor Anat Admati at a debate at the World Economic Forum.
“It can’t be that safer comes from relatively modest improvements in certain metrics plus private and policy maker half-steps,” said Singer, whose New York-based hedge fund manages $US24 billion.
“Because of the inability of investors to understand the financial condition of the major financial institutions, they aren’t able to stand on their own in the next financial crisis.”
Five years after the collapse of Lehman Brothers forced governments to bail out financial firms and prompted a global recession, bankers are still grappling to convince the public they can avoid a similar crisis. In a vote at the end of the debate, almost 40 per cent of the 100-strong Davos audience said markets haven’t been made safer. Banks and financial services are the least trusted of all industries, according to a survey by public relations firm Edelman released on January 20.
For Singer, 69, banks still benefit from government subsidies, while Admati, the author of The Bankers’ New Clothes: What’s Wrong with Banking and What to Do About It, compared the overhauls implemented since the end of the crisis to a 5 mile-per-hour reduction of a 90 mile-per-hour speed limit and said too much bank debt and inadequate transparency remain a threat.
Both Jenkins and Flint, neither of whose firms received a government bailout during the financial crisis, argued the system has become safer.
“It would be a shocking reflection if that were not the case,” Flint told the audience. Banks have three to six times more capital than before the financial crisis, the quality of their buffers has been improved and regulatory oversight has been bolstered, he said.
“If banks are getting a subsidy in their reference rate, then they are passing it onto society in terms of cheaper finance,” said Flint, who has been chairman of Europe’s biggest bank since 2010.
Jenkins said markets need rules to ensure the successors to today’s leaders can’t repeat earlier mistakes.
“We will have another problem like this when all the people like us who carry the scars of this have retired or died,” he said. “What we need to do is find a way to box in the animal spirits through profound change.”
In another panel discussion, UBS chairman Axel Weber warned that this year’s review by the European Central Bank of the region’s lenders risks reigniting concerns about the industry as some companies will probably fail the stress test.
“An exam where everyone passes is usually viewed as not being a credible exam,” he said. “I expect some of the banks not to pass this test,” and speculators may start betting on the winners and losers before the ECB assumes oversight of the region’s banks in November. “I don’t think that markets at this point will provide sufficient capital, at least not for the banks that are in doubt.”
In 2010, politicians pushed for bankers at Davos to sign up quickly to new rules, while executives said proceeding cautiously was the best way to go. A year later, delegates from the finance industry declared they had found more common ground with their overseers, only for then-French finance minister Christine Lagarde to reject the “very heartfelt thanks” offered for government bailouts by then-Barclays CEO Bob Diamond.
Last year, JPMorgan Chase & Co CEO Jamie Dimon defended banks from blame for the crisis, and argued regulators were “trying to do too much, too fast.”
This year, returning to Davos as head of a bank that agreed to pay more than $US23 billion in 12 months in fines and settlements, Dimon has no public appearances. Instead, he listened to today’s debate standing at the back of the room.
The depth of the crisis and its economic aftershocks mean it’s “not surprising” banks are still held in disdain even after they bolstered capital, raised liquidity, cut leverage and shed proprietary trading arms, Morgan Stanley CEO James Gorman said.
Improving the industry’s public standing will depend on economies strengthening and no new mistakes being made, he said.
“‘The industry is doing a lot,’’ Gorman said in an interview. ‘‘I don’t know you can tell a story to an audience that’s not ready to listen.”