Barclay’s Diamond warns of dangers …
Sunday, January 31st, 2010 Uncategorized.
By Edmund Conway in Davos
Published: 6:00PM GMT 27 Jan 2010
Barclays president Bob Diamond warns against ban on proprietary trading at the 2010 WEF meeting in Davos.
In a veiled threat to governments considering proposals to forbid banks from carrying out lucrative “proprietary trading”, Mr Diamond said that such moves would not only threaten the wider economy, but could compromise their plans to sell their bonds.
In a session at the World Economic Forum in Davos, Mr Diamond, who runs Barclays Capital, the investment arm of the bank, said that Mr Obama’s plans could weaken the divisions of banks which the US government itself relies on to help sell its debt.
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Mr Diamond said: “It is very, very difficult to see that we can differentiate between risks banks take for their customers and prop trading.
“The US Government has $8 trillion (£4.95 trillion) in bonds and debts on its books, half of which comes due in the next 18 months. Banks like Barclays are sophisticated and experienced in the US and UK at placing and trading those securities.
“There is a real need for banks like Barclays to be active traders of those securities every day, every hour in the market.”
Mr Obama’s plan, unveiled last week, is not merely to separate prop desks, whose role is to trade the bank’s cash to make a profit on independent investments, but to find ways to slim down banks into smaller entities less likely to cause a wider economic collapse if they fail. However, the White House has presented little detail on how the proposals would be implemented.
Mr Diamond said: “I have seen no evidence that suggests shrinking banks is the answer. If you step back and say large is bad, and we move to narrow banking, the impact of that on banks and on global trade, the global economy, would be very negative.
“Without risk we do not have a banking industry… Having banks that are well-managed and willing to take risk, and especially willing to take cross-border risk, is essential if we want to have jobs and economic growth.”
The US plans, masterminded by presidential adviser Paul Volcker, a former Federal Reserve chairman, are one of the main talking points of the Davos conference.
Mr Diamond’s warning came as he sat on a panel of economists and regulators with mixed views about the Obama proposals. Jaime Caruana, head of the Bank for International Settlements, said that the plans could help minimise risk, but warned against attempting to impose them internationally.