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Davos 2011: Dimon and Sarkozy Clash Over State of Global Banking

When the CEO of JP Morgan Chase, Jamie Dimon, warned against overregulation of the banking sector at Davos on Thursday, French president Nicolas Sarkozy had a swift rebuke.

Davos is supposed to be the place where the global elite meet to hold serious discussions about serious matters and do real deals. But this year, some participants seem determined to play to the gallery.

That’s certainly the case for the banking industry and its regulatory and political overlords. Global banks came to the World Economic Forum here keen to turn the page, get off their knees and regain their swagger. After all, the global economy is recovering strongly (if unevenly), markets are up, and most leading banks have rebuilt their capital bases to an extent few would have imagined two years ago.

Robert Diamond, the American CEO of Barclays whose purchase of Lehman Brothers’ U.S. business looks like being one of the best and boldest moves of the crisis, set the tone when he told a U.K. parliamentary committee last week that “the period of remorse and apology” for banks “needs to be over.”

Jamie Dimon, the CEO of JP Morgan Chase and another deft navigator of the crisis, amped up the volume at a public forum session on preparedness for future shocks. He lashed out against public criticism of banks and insisted that institutions like JP Morgan, which bought Bear Stearns and Washington Mutual, had acted as stabilizing forces and were now boosting lending. "Not all banks are the same and I just think that this constant refrain 'bankers, bankers, bankers' is just unproductive and unfair,” he said. “People should just stop doing that."

Some hope. Barely an hour later, President Nicolas Sarkozy outlined his ambitions for France’s presidency of the G-20 this year, including pushing for a tax on financial transactions to finance development. When it came time for questions, Dimon urged Sarkozy to make sure that the G-20 doesn’t overregulate banks, only to get a swift rebuke. "The world has paid with tens of millions of unemployed, who were in no way to blame and who paid for everything," Sarkozy responded. So much for sympathy.

The exchange made clear, if anyone doubted, that the scars from the financial crisis remain painful. But the harsh rhetoric exaggerated the real state of affairs. Much of the regulatory response to the crisis is already settled, and not contested by banks. The key planks of the Basel III accord, which will require banks to boost their core equity capital to 7 percent of assets from 2 percent, are already decided. The controversial Volcker rule banning proprietary trading by banks is fast becoming reality as prop traders depart Wall Street banks for hedge funds.

There are still issues to work out, of course. Whether to impose a capital surcharge on systemically important banks and how to set new liquidity requirements are at the top of the list. Bankers in the U.S. and Europe continue to fret that their regulators will implement the new rules too aggressively or quickly, leaving them at a disadvantage. A number of bankers pressed their point in a closed-door session here with U.S. Treasury Secretary Timothy Geithner, and they will hold a broader meeting with regulators on Saturday. But the issues still in play are relatively modest compared to what’s already been decided. And both bankers and politicians are eager for the industry to play its part in sustaining the recovery.

“The blame game is over,” said one European central banker here. “That’s useful. Banks are getting back to business.”

Hopefully they will do just that once the TV cameras are turned off and the Davos crowd returns to their offices.

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