Major global banks split on regulation battle

By Reuters Staff
January 29, 2010

By Lisa Jucca and Martin Howell

DAVOS, Switzerland, Jan 29 (Reuters) – The world’s top financiers are at odds about how to fight back against a global push for tougher financial regulation, with commercial and investment banks struggling to reach common ground.

Top executives from Wall Street and Europe’s leading banks have been holding behind-the-scenes talks at the World Economic Forum in the Swiss ski resort of Davos, sources close to the negotiations said, but a deal has proved elusive.

Wall Street’s largest and some major European investment banks argued in favour of a tough common front against politicians who are calling for much tougher measures to regulate the industry in the wake of the financial crisis.

But they did not manage to win over the heads of some commercial banks who believe the industry needs to be more conciliatory, the sources with knowledge of the talks said.

“The tough line of the large investment banks is very different than the approach of the major commercial banks,” said one of the sources on Friday. “It looks like it is very difficult to reach a common position.”

The banks held the discussions ahead of an expected meeting with regulators and lawmakers on Saturday.

“What we are trying to achieve is to engage in a good dialogue with all the relevant parties, the regulators and the political side,” said Brian Moynihan, the CEO of Bank of America Corp., who confirmed the bankers’ meeting took place.

U.S. President Barack Obama jolted markets on Jan. 21 with proposals to force commercial banks to cut ties with hedge funds and private equity funds and to stop proprietary trading for their own profit. Obama has also said he wanted the financial sector to pay for a massive taxpayer bailout.

This followed a move by Britain in December to introduce a so-called supertax on higher bank staff bonuses.

Bankers attending the annual Davos jamboree, in boom years an opportunity for lavish parties and networking, have used the forum as an occasion to express frustration at their treatment and demonisation in the hands of the public and politicians.

One top banker who attended the financiers’ meeting, said there was a lot of “frustration” expressed by executives who thought they had done a lot to change in the past year but that politicians just weren’t listening.

“There is a common language (with) regulators, central bankers … and increasingly a very constructive dialogue,” Peter Sands, Chief Executive of Standard Chartered, said.

“The more challenging strand of how banks and bankers craft a new relationship with society is on the political side,” he said, adding the industry had been “tone deaf” and insensitive.

DON’T GO IT ALONE

Top industry figures including Barclays President Bob Diamond and Deutsche Bank Chief Executive Josef Ackermann have taken the stage in Davos to warn policymakers against unilateral action on regulation which would threaten fragile political consensus on new rules within the G20.

“The solutions have to be consistent enough that we can operate,” Moynihan told Reuters at the Swiss resort.

“I think people will work on making sure that there is a balance … between the need for our industry to finance economic growth and the need for our industry to have fairness and transparency achieved by regulation.”

Some observers, however, have said lengthy negotiations to hammer out an agreed set of rules would suit banks’ purposes by delaying and potentially watering down any changes.

Much under attack is a proposal by Obama to curb proprietary trading that risks limiting the profitability of investment banks as well as adding a layer of regulation on top of stronger capital ratios and liquidity.

But banks failed to agree even on that.

“I like his (Obama’s) plans — he keeps his eyes on the ring fencing of customers’ deposits,” said Piet Moerland, chairman of Dutch bank Rabobank.

(Reporting by Lisa Jucca and Martin Howell; Editing by Hans Peters) ((elisabetta.jucca@reuters.com; +44 207 542 3214; Reuters Messaging: rm://elisabetta.jucca.reuters.com@reuters.net))

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