DAVOS, Switzerland (Reuters) - Bankers, their confidence restored, have told anyone who will listen in Davos that excessive regulation will do more harm than good, in stark contrast to a year ago when they sounded chastened.
But policymakers from French President Nicolas Sarkozy down insist the measures put in place so far do not go anywhere near far enough to ward off another global financial crisis, highlighting a growing rift between the two sides.
At Davos 2010, there appeared to be common ground following months of recrimination over the financial crisis.
Twelve months on and regulators say there is still work to be done — including measures on “too big to fail” banks — while banks are warning policymakers not to go too far or run the risk of stifling global growth, investment and business confidence.
Regulators and lawmakers around the world are busy hammering out new requirements to avoid a repeat of the credit crisis of 2007-08, which U.S. Federal Reserve Chairman Ben Bernanke has said surpassed the Great Depression of the 1930s in severity.
Sarkozy unleashed a broadside at financiers on Thursday at a session in Davos accusing them of causing the crisis.
“The world has paid with tens of millions of unemployed, who were in no way to blame and who paid for everything,” Sarkozy said in response to an intervention from JP Morgan boss James Dimon. “It caused a lot of anger.”
Dimon, who steered his bank through the credit crisis virtually unscathed, asked the G20 not to rush to impose new rules. “Too much is just too much,” he told the French leader.
Swiss National Bank Chairman Philipp Hildebrand, one of the architects of Basel III regulations was more measured than Sarkozy but reiterated that a further tightening of rules was needed.
“Basel III is a different story than some of the elements that are still on the table,” said Hildebrand.
“The whole ‘too big to fail’ is really not covered by Basel III,” he said referring to regulators’ efforts to try and avoid the threat of a big bank failure bringing the economy down.
“The uncertainty around the incomplete regulatory project is really what is damaging rebuilding of confidence process ... that is so crucial in how the economy is going to react to all this.”
Speaking at a private lunch hosted by Credit Suisse CSGN.VX, Hildebrand said regulators also still needed to calibrate requirements for banking liquidity and tackle the rise of unregulated pockets of the financial system.
“The linkage between the banking system and this shadow system is going to be crucial,” Hildebrand, who sits on the steering committee of the Financial Stability Board, said, adding that the timeframe on this project would be longer.
Yet bankers say too much regulation is precisely what was pushing more and more participants to move risk into opaque areas of the financial system, which U.S. National Economic Council Director Larry Summers called a “buccaneer system.”
Jaime Caruana, General Manager of the Bank for International Settlements, rejected criticism that the new rules were too burdensome and said banks were being given enough time to implement them.
“A lot has been done already just in preparation of Basel III, but there are still adjustments to be done,” he said. “But, given that implementation will be over a long period of time, the impact in terms of costs for the banks will be low.”
Barclays Plc’s (BARC.L) new boss Bob Diamond sounded a clarion call for bankers earlier this month, when he told UK lawmakers it was time for banks to stop apologizing for their part in the financial crisis.
Top bankers at this year’s World Economic Forum continued the theme of resistance.
Yet, the Basel Committee is pushing ahead with plans to prevent the collapse of large banks, known as Systemically Important Financial Institutions, triggering another crisis.
The aim is to devise by year-end a system that would allow the orderly winding down of such institutions if they fell into trouble. They may also be required to hold additional capital.
“The concern I have is that we have already reached a level of capital ratios that for many banks may create an obstacle for further growth,” IntesaSanpaolo (ISP.MI) CEO Corrado Passera said in an interview with Reuters Insider TV in Davos.
Editing by Mike Nesbit