Global Financial Strategy - Diamond warns against 'Balkanisation'

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Diamond warns against ‘Balkanisation’

Thursday 26 January 2012 – by Andrew Hickley

Barclays chief executive Bob Diamond has warned global regulators against enacting protectionist measures and a “Balkanisation” of regulation as banks look to boost global growth.

In an interview with Bloomberg on Thursday, Diamond highlighted the changing regulatory environment as a considerable challenge for the banking industry.

The American called for worldwide regulators to find a “balance” to ensure that the introduction of regulations to safeguard banks does not impact upon economic growth.

“We know we want to make the financial system safer and sounder but we also know the importance of driving the economy and providing opportunities for job creation,” Diamond said, speaking in Davos.

“I think importantly we need to keep a balance between the G20 – or at least the major economies – so that we encourage the continued development of international banking and not to return to protectionism and Balkanisation.

“And I think on all those areas we are moving forwards,” he added.

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Diamond pointed to the UK’s ring-fencing requirement as an “example of the Balkanisation” he referred to. He has been a fierce critic of the Independent Banking Commission’s reforms, which will see a ring-fence being enacted between a bank’s retail and investment units to ensure the safety of its customer deposits.

“We’ve been very public that we would’ve preferred a different route, that ring-fencing of the retail banking operations will increase the costs of retail and business banking in the UK,” he said.

“But we’ve also been very clear that the decision has been made, we’re moving on and we’re beginning to implement.”

Additionally, the 60-year-old admitted in the interview that “the best decision” Barclays had made during his time at the bank was during the fourth quarter of 2008 when the bank decided to raise its core equity levels to above 10 per cent despite the poor state of the global financial system.

While he said the move hurt the bank’s profits in the short-term, it “allowed us to put up a sign everywhere saying that we are open for business – there’s no issue about capital,” he said.

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