Reply #19: Bankers back on the offensive at Davos [View All]

[Demeter]

http://www.economist.com/blogs/newsbook/2011/01/davos_diary_3

A YEAR ago, the bankers gathered in Davos were publicly under attack and privately spitting about America's government. The Swiss gathering took place only a few days after Barack Obama, smarting from the loss of a Senate seat in Massachusetts, made some fiery anti-banker comments and (out of the blue) announced his desire to introduce the "Volcker Rule", which would prevent banks from proprietary trading. Regulators in Davos were baffled (they had no idea the proposal was coming). Bankers were furious—and terrified. Their public comments were muted (this was, after all, at the height of the global anti-banker backlash). But in private they did not mince words: American policymakers had gone mad in a populist overreaction to the Massachusetts election.

Fast-forward a year and the tone in Davos is stunningly different. The bankers are on the public offensive. Gary Cohn, president of Goldman Sachs, complained that the drive to new financial regulation could cause the next crisis. Jamie Dimon, boss of JPMorgan, lashed out at those who blamed banks for the financial crisis. Privately, however, the bankers seem much less agitated than they were last year. Most recognise that the international Basel 3 reforms, designed to boost capital and liquidity, make sense. They seem to have made their peace with America's financial-reform law, even though it includes a version of the Volcker Rule. Many of those who were spitting about the Obama administration now sound quite positive. "Last year Obama was bashing bankers; now he's returned to the centre," is a sentiment you hear again and again. Amongst the Davos financial crowd, at least, Mr Obama's rhetorical wooing of business is working. As one cynical observer put it "a little kissy-face gets you a long way"

If the bankers are keener on (or at least less worried about) Obama and American regulatory rules, they have become more worried about Britain. Much of the behind-the-scenes moaning this year is about the tone and direction of British financial reform. Alone among big financial centres, the direction of Britain's financial reform is not yet set. The debate has been a lot more radical (with Mervyn King, governor of the Bank of England, arguing for radical change). The Vickers commission has yet to report—and although the early signs do not point to great radicalism, bankers fret about what may come.

Add in the row about bankers' pay (which rages louder in Britain than elsewhere) as well as the higher tax rates they are paying, and the financiers' mood about London is pretty grim. Publicly, the bankers speak in generalities about the costs of regulation and the fact that all their expansion is in Asia. Privately some are willing to speculate on which parts of their businesses could move if conditions in Britain get worse. Other financiers are more forthright. Paul Singer, head of Elliot Management Corporation, a big hedge fund, talked of a "jealous spirit" permeating Britain's policy towards finance, that was "almost suicidal" for London's future as a financial centre. Boris Johnson, mayor of London, acknowledges the problem. "I'm worried that people are starting to think there is a hostile political climate", he admits. "My job is, by sheer infuriating bonhomie, to dispel that". Maybe Mr Obama can offer some lessons.

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