Elisa Martinuzzi and Simon Kennedy Milan and London
Top bank executives are struggling to convince the world’s business elite in Davos that 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 on Wednesday from Paul Singer, the billionaire hedge fund manager who runs Elliott Management Corporation, and Stanford University professor Anat Admati at a debate at the World Economic Forum (WEF).
“It can’t be that safer comes from relatively modest improvements in certain metrics plus private and policymaker half-steps,” said Singer, whose hedge fund manages $24 billion (R260bn). “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 lenders and prompted a global recession, bankers are still grappling to convince the public they can avoid another similar crisis.
In a vote at the end of the debate, almost 40 percent of the 100-strong Davos audience said markets had not 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 Monday.
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 with an 8km/h reduction of a 145km/h speed limit and said too much bank debt and inadequate transparency remained a threat.
Both Jenkins and Flint, neither of whose firms received a government bailout during the financial crisis, argued that the system had become safer.
“It would be a shocking reflection if that were not the case,” Flint said. Banks had three to six times more capital than before the financial crisis, the quality of their buffers had been improved and regulatory oversight had been bolstered.
“If banks are getting a subsidy in their reference rate, then they are passing it onto society in terms of cheaper finance,” Flint said.
Jenkins said markets needed rules to ensure the successors to today’s leaders could not repeat earlier mistakes. – Bloomberg