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Pushing back against regulators, banks play the ‘don’t hurt the economy’ card

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The world’s top bankers already are feeling confident enough about themselves to warn their governments about the risks inherent in pending regulatory revamps of the industry.

One year after the beginning of the financial crash that led to bank bailouts across the U.S. and Europe, meetings of banking chiefs and global finance ministers in Istanbul, Turkey over the weekend resulted in a sort of verbal shoving match.

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Deutsche Bank CEO Josef Ackermann, who also chairs the Institute of International Finance trade group of the world’s largest banks, warned in a statement that ‘official regulatory reforms must be balanced, and the trade-offs involving possibly lower global growth and less job creation need to be carefully considered.’

Governments, he said, need to ensure that ‘regulated financial institutions are able to innovate and to provide the credit flows necessary for economic growth across the world. Regulatory measures need to be weighed in substantive dialogue with the industry to enable banks to play their vital role in the economy.’

Then there was this gem, as relayed by Bloomberg News:

Charles Dallara, managing director of the Washington-based IIF, likened the global financial system to a ‘beautiful tapestry’ that could unravel if policy makers pull the wrong thread. ‘We are beyond the point where we can allow the entire blame to be laid at our doorstep,’ Dallara said. ‘Does anyone really believe the crisis happened because a few bankers failed to manage their risks?’

No, Charles, the crisis happened because many more than a few bankers failed to manage their risks.

If Ackermann and Dallara were hoping for sympathy from the finance ministers, they miscalculated. If anything, the push-back gave the regulators an excuse to publicly thrash the banks again, and assure their taxpayers that serious re-regulation will be forthcoming.

From Bloomberg:

French Finance Minister Christine Lagarde countered that ‘insufficient regulation’ is a ‘much more serious problem than too much.’ Mario Draghi, the Italian central banker charged by world leaders to draw up a new blueprint for the financial industry, said it’s ‘premature’ to fret about excessive regulation. Draghi . . . said there’s ‘no doubt’ that there’s a need for more capital, less dependence on borrowed money, and a reduction in the ‘perverse incentives’ that caused the financial crisis. U.S. Treasury Secretary Timothy Geithner said excessive regulation ‘is not anything like the greatest risk we face today.’ ‘We’re not going to adopt an approach that does stuff at the margin and delays any changes to help preserve market practices that helped make this crisis much more dangerous,’ he said.

-- Tom Petruno


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