Antony Jenkins, the boss of Barclays, warned yesterday that there would be another financial crisis once the current crop of bankers, who bore the scars of 2008, had retired or died. "I don't think we're going to have another crisis like this in the next five years, but we will have another problem when all the people like us … have retired or died."
Jenkins said the only alternative was "to find a way to box in the animal spirits (of bankers) through profound change".
As the bonus season begins – and banks such as Barclays seek ways to avoid the EU bonus cap – Jenkins insisted there is now more pay restraint among bankers, but said banks also had a responsibility to shareholders to attract the best employees.
Speaking at Davos on whether the markets are now safe again, he was forced to defend the use of complex financial derivatives, which were described by a fellow speaker as a "net negative to society". Hedge fund boss Paul Singer, who runs Elliott Associates, said he traded derivatives, but added: "On balance (there is a) net negative to society from this type of invention. The hedging benefits have been exaggerated and are outweighed by growing complexity and leverage." Jenkins, however, insisted that derivatives helped customers ranging from pension funds to airlines, which use them to hedge fuel costs.
Douglas Flint, chairman of HSBC, said the "single most important thing" making the financial system safer was the use of so-called central counter parties to stand behind derivatives trades, which do not take place on an exchange but privatively between banks.
But Singer and Anat Admati, the Stanford school of business professor who has written a hard-hitting book attacking bankers, insisted that five years on from the crisis, the risks remained. "Where we are is not where were need to be. It's a very scary situation," said Admati.
Singer was concerned about the opacity in the financial system where he said banks were running at higher leverage – borrowing – than they were before the crisis.Jenkins said that financial stability was not just about banks, but other parts of the financial system, and warned about the impact of rules requiring banks to hold more capital: "Society needs to decide how we balance safety and soundness with capacity in the system."
Flint said that while new rules for unwinding troubled banks by requiring bond holders to step in to cushion losses should let taxpayers off the hook in the future – although "the man on the street" would still be required to bail out banks through holdings of bonds in pension funds and other savings.
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